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Deregulation as a Means to Increase Competition and Productivity

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  • Valkonen, Laura

Abstract

This study examines how deregulation affects product market competition and thereby productivity. Productivity grows when firms ameliorate their performance, which they will be unwilling to do in the absence of competition. It obliges firms to renounce high rents and cut costs, which increases static efficiency. However, static efficiency boosts productivity only temporarily. Long-term gains are derived from dynamic efficiency, which competition promotes in two ways. First, it increases incentives to innovate, and secondly, it accelerates creative destruction. Since regulations impede the free entry of rivals, they ensure firms a quiet life. Deregulation has therefore great potential to boost productivity growth. This study describes the process of regulatory reform in Finland. In addition to a country-level analysis, deregulation and its consequences are examined in service station and restaurant industries, which have experienced extensive reforms. The purpose was to see whether deregulation has induced external restructuring in these sectors. The results give some indication of external restructuring in both industries.

Suggested Citation

  • Valkonen, Laura, 2006. "Deregulation as a Means to Increase Competition and Productivity," Discussion Papers 1014, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:dpaper:1014
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    More about this item

    Keywords

    deregulation; competition; productivity; entry;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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