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Product Market Competition in Transition Economies: Increasing Varieties and Consumer Loyalty


  • Mitsutoshi Adachi


The collapse of communism brought about previously inexistent product market competition in transition economies. This paper analyzes such rivalry with a focus on some specific features of these markets. While inviting foreign multinationals is always beneficial for local consumers, cost reduction at the local producers (i.e., former SOE's) is necessary to realize the full-fledged benefits of such entry. Inefficient production by the former SOE's is particularly detrimental when the cost difference vis-??-vis foreign entrants is above a threshold level, because the more efficient entrants exploit their cost advantages to raise prices instead of pricing aggressively for market share. This in turn reduces the appeal of opening domestic markets to international trade to promote competition.

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  • Mitsutoshi Adachi, 1999. "Product Market Competition in Transition Economies: Increasing Varieties and Consumer Loyalty," William Davidson Institute Working Papers Series 223, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1999-223

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    References listed on IDEAS

    1. Micklewright, John & Nagy, Gyula, 1996. "Labour market policy and the unemployed in Hungary," European Economic Review, Elsevier, vol. 40(3-5), pages 819-828, April.
    2. Shorrocks, A F, 1978. "The Measurement of Mobility," Econometrica, Econometric Society, vol. 46(5), pages 1013-1024, September.
    3. Patrick Puhani & Viktor Steiner, 1997. "The Effectiveness and Efficiency of Active Labour Market Policies in Poland," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 24(3), pages 209-231, October.
    4. Lubyova, Martina & van Ours, Jan, 1997. "Unemployment dynamics and the restructuring of the Slovak unemployment benefit system," European Economic Review, Elsevier, vol. 41(3-5), pages 925-934, April.
    5. Tito Boeri, 1994. ""Transitional" unemployment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(1), pages 1-25, March.
    6. Flinn, Christopher J., 1997. "Labor Market Structure and Welfare: A Comparison of Italy and the U.S," Working Papers 97-07, C.V. Starr Center for Applied Economics, New York University.
    7. Puhani, Patrick A. & Steiner, Viktor, 1996. "Public works for Poland? Active labour market policies during transition," ZEW Discussion Papers 96-01, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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    More about this item


    product market competition; foreign entry; former SOE's; inefficiency;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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