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 mark...
| Main Authors: | , , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/08/1570689/markups-entry-regulation-trade-country-size-matter http://hdl.handle.net/10986/19563 |
| Summary: | 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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