Markups, entry regulation, and trade - Does country size matter?
Actual, and potential competition is a powerful source of discipline on the pricing behavior of firms with market power. The authors develop a simple model that shows that the effects of new entry, and import competition on industry price-cost markups, depend on country size. The authors predicted that barriers to domestic entry would have a stronger anti-competitive effect in large countries, while barriers to foreign entry (imports) would have a stronger effect in small countries. After estimating markups for manufacturing sectors in forty-one industrial, and developing countries, they test these hypotheses, and find that the hypotheses cannot be rejected by the data. For example, although Indonesia, and Italy impose the same number of regulations on the entry of new firms, the effect of the regulations on manufacturing markups is twenty percent greater in Italy because of its larger size. Similarly, while Chile and Zimbabwe have the same import penetration ration, the market discipline effect of imports is thirteen percent greater in Zimbabwe because of its smaller size.
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- Basu, Susanto & Fernald, John G., 1995.
"Are apparent productive spillovers a figment of specification error?,"
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- Henrik Horn & James Levinsohn, 1997. "Merger Policies and Trade Liberalization," NBER Working Papers 6077, National Bureau of Economic Research, Inc.
- Horn, Henrik & Levinsohn, James A, 2000. "Merger Policies And Trade Liberalization," CEPR Discussion Papers 2459, C.E.P.R. Discussion Papers.
- Horn, H. & Levinsohn, J., 1998. "Merger Policies and Trade Liberalization," Working Papers 420, Research Seminar in International Economics, University of Michigan.
- Damien NEVEN & Paul SEABRIGHT, 1995. "Trade Liberalisation and the Co-ordination of Competition Policy," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9503, Université de Lausanne, Faculté des HEC, DEEP.
- Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February. Full references (including those not matched with items on IDEAS)
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