The Effects of Privatization and Competitive Pressure on Firms?Price-cost Margins: Micro Evidence from Emerging Economies

Jozef Konings, Patrick Van Cayseele and Frédéric Warzynski

LICOS Discussion Papers from LICOS - Centre for Institutions and Economic Performance, KU Leuven

Abstract: This paper uses representative firm level panel data of 1,701 Bulgarian and 2,047 Romanian manufacturing firms to estimate market power (i.e. price-cost margins) and to analyze how these are affected by privatization and increased competitive pressure. In contrast to earlier work that analyzes the effect of ownership on firm performance, the estimation method we use deals with potential endogeneity problems that are associated with estimating firm performance, by making use of the properties of the primal and dual Solow residual. State owned enterprises have lower price-cost margins than privatized and foreign owned firms, which suggests that state owned enterprises price closer to marginal costs and are more concerned with maximizing social welfare (allocative efficiency). An alternative interpretation is that state owned firms have higher costs than private firms. Foreign owned firms have the highest price-cost margins. Also privatized domestic owned firms have higher price-cost margins than state owned enterprises. In addition, our results give support to the idea that opening to trade has a disciplining effect on firms?market power. We find that increased import penetration is associated with lower price cost margins in sectors where product market concentration is relatively high.

Keywords: market power; privatization; firm performance; transition (search for similar items in EconPapers)
JEL-codes: L1 L33 P3 P5 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2002
New Economics Papers: this item is included in nep-com, nep-mfd and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://www.econ.kuleuven.be/licos/publications/dp/dp125.pdf

Related works:
Journal Article: The Effects of Privatization and Competitive Pressure on Firms' Price-Cost Margins: Micro Evidence from Emerging Economies (2005)
Working Paper: The Effect of Privatization and Competitive Pressure on Firms' Price-Cost Margins: Micro Evidence from Emerging Economies (2003)
Working Paper: The Effects of Privatization and Competitive Pressure on Firms’ Price-Cost Margins: Micro Evidence from Emerging Economies (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:lic:licosd:12502

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