Measuring the Deviations from Perfect Competition: International Evidence (second version)

Weshah Razzak

MPRA Paper from University Library of Munich, Germany

Abstract: We use aggregated macroeconomic data for 43 countries plus the EU19 and EU27 from 1970 to 2022 to test the microeconomic condition for Perfect Competition, whereby the price level is equal to the marginal cost in the long run. We postulate two forms of Perfect Competition in the macro data: a weaker-form and a stronger-form. The former exists if the price level and the marginal cost share a common long-run trend; i.e., cointegrated. The latter exists if the market price and the marginal cost are equal in the long run. There is more evidence for a weak-form competition than for strong-form competition. Macroeconomic interpretations of the deviations depend on whether the ratio of the price to marginal costs is equal to, greater, or lower than 1. The ratios vary significantly across countries and over time. A ratio of price to marginal cost >1 implies non-competitiveness. We interpret a ratio

Keywords: Perfect Competition; price level; marginal cost; time series; cointgration; nonparametric (search for similar items in EconPapers)
JEL-codes: C12 C13 C22 D01 D41 (search for similar items in EconPapers)
Date: 2024-01-06, Revised 2024-02-17
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (1)

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