Benefits and Spillovers of Greater Competition in Europe: A Macroeconomic Assessment

Abstract

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Price-Setting Behaviour in Belgium: What Can Be Learned from an Ad Hoc Survey ?

“…A similar magnitude is found by Fabiani et al (2004). An elasticity of 4.5 implies a mark-up of 1.29, compared to 1.35 for the euro area in Bayoumi et al (2004) and 1.1 in Galí et al (2001). Only a limited number of firms report an elasticity of demand which is close to the situation of perfect competition (an infinite elasticity of demand), as the 95th percentile firm still reports an elasticity of demand below 10.…”

“…Pursuing this argument, it might be advanced that there should exist a positive relationship between the degree of market power, on the one hand, and the degree of price stickiness, on the other hand. This seems to be the force which is at work in the model of Bayoumi, Laxton and Pesenti (2004), who find that more competition increases the responsiveness of wages and prices to market conditions and therefore improves macroeconomic management.…”

The welfare cost of imperfect competition and distortionary taxation

“…This is the average time people between 18-64 years spend in employment, see Juster and Stafford (1991). The price and wage markups are taken from Bayoumi, Laxton and Pesenti (2004); that is, the price markup is 23 percent and the wage markup 16 percent. 4 The effective tax rates are set as follows: τ k = 0.43, τ h = 0.25 and τ c = 0.06, as reported in Mendoza, Razin and Tesar (1994).…”

“…In our benchmark case we use the same estimates of the price and wage markups as in Bayoumi, Laxton and Pesenti (2004); that is, the price markup is 23 percent and the wage markup 16 percent. The model then implies that the welfare cost of imperfect competition in the product market is 38.19 percent.…”

“…More recent studies have incorporated imperfect competition in a general equilibrium framework. Bayoumi, Laxton and Pesenti (2004) quantify the benefits for the euro area of raising competition. Increasing competition in the euro area to the U.S. level increases output by 12.4 percent in their study.…”