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Joint Estimation of Mark-up and Bargaining Power Parameters for Belgian Manufacturing

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  • Sabien Dobbelaere

Abstract

This paper applies several extensions of Hall's (1988) methodology to analyse imperfections in both the product and the labour market for firms in the Belgian manufacturing industry over the period 1988-1995. We investigate (1) the heterogeneity in mark-up and bargaining power parameters among 17 sectors within the manufacturing industry, (2) whether higher bargaining power parameters are associated with higher mark-ups and (3) whether both parameters are influenced by cyclical and competition effects. Our GMM results indicate that ignoring imperfection in the labour market leads to an underestimation in the price-cost margin of Belgian manufacturing firms. These findings are confirmed in the sectoral analysis. As expected, higher bargaining power parameters are associated with higher price-cost margins at the sectoral level. We find that both the mark-up and the bargaining power parameter move procyclically. Finally, after controlling for cyclical effects, our results show that the introduction of a new competition policy in Belgium in 1993 has exerted a statistically significant negative effect on the price mark-ups, leaving the bargaining strength of the workers unchanged. Hence, the stringent competition law seems to have disciplined firms?pricing behaviour.

Suggested Citation

  • Sabien Dobbelaere, 2002. "Joint Estimation of Mark-up and Bargaining Power Parameters for Belgian Manufacturing," LICOS Discussion Papers 12102, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  • Handle: RePEc:lic:licosd:12102
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    File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp121.pdf
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    References listed on IDEAS

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    1. Schroeter, John R, 1988. "Estimating the Degree of Market Power in the Beef Packing Industry," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 158-162, February.
    2. Haskel, Jonathan & Martin, Christopher & Small, Ian, 1995. "Price, Marginal Cost and the Business Cycle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 25-41, February.
    3. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 227-251.
    4. Mark Bils, 1989. "Pricing in a Customer Market," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 699-718.
    5. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
    6. Vandenbussche, Hylke & Veugelers, Reinhilde & Konings, Jozef, 2001. "Unionization and European Antidumping Protection," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 297-317, April.
    7. John A. Abowd & Thomas Lemieux, 1993. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 983-1014.
    8. Sabien Dobbelaere, 2001. "Insider Power and Wage Determination in Bulgaria An Econometric Investigation," LICOS Discussion Papers 11101, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    9. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    10. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    11. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
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    More about this item

    Keywords

    Efficient Bargaining; Price Setting; Market Power; Competition Policy; Enterprise Behaviour;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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