Measuring market power in the Greek manufacturing and services industries

This document is the Accepted Manuscript version of the following article: Chrysovalantis Amountzias, ???An Investigation of the Degree of Market Power in the Greek Manufacturing and Service Industries???, Journal of Industry, Competition and Trade, first published online 2 February 2017. Under embargo. Embargo end date: 2 February 2019. The final publication is available at Springer via http://dx.doi.org/10.1007/s10842-017-0245-4This paper investigates the degree of market power in the Greek manufacturing and service industries over the period 1970???2007. The markup model developed by Hall (1988) and Roeger (1995) is taken into consideration where market power is expressed as the difference between the selling price and the marginal cost of production. The analysis will be conducted in three steps; the first step estimates the price-cost margin of the manufacturing and services industries over 1970???2007; the second step applies the cross section specification under which the markup ratio is obtained for the 23 manufacturing and 26 service 2-digit ISIC sectors of the panel sample; and the third step estimates the price-cost margin of the manufacturing and services industries for each year over 1973???2007 by employing the Hall-Roeger time series specification. The empirical findings suggest that both industries exert a positive markup ratio; however, the service industry appears to be less competitive than the manufacturing industry

Section: Yearssupporting

confidence: 75%

Section: Introductionmentioning

confidence: 90%

Section: Literature Reviewmentioning

confidence: 99%

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An Investigation of the Degree of Market Power in the Greek Manufacturing and Service Industries

Amountzias

2017

“…This outcome contradicts with previous studies regarding independent European countries (Molnár, 2010;Polemis, 2014), and indicates no evidence of market power in the specific sectors.…”

Section: About Here>contrasting

confidence: 56%

Measuring the Magnitude of Significant Market Power in the Manufacturing and Services Industries: A Cross Country Approach

Polemis

Fotis²

2015

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This paper provides estimates of price-marginal cost ratios for manufacturing and services sectors in the Eurozone, the US and Japan over the period . The estimates are obtained applying τhe methodology developed by Hall (1988) and extended by Roeger (1995) indexes, and the degree of sectoral regulation. However, these indicators do not always reflect the real degree of competition in a sector (Trėsor-Economics, 2008). 3An alternative approach is to use national accounts data to infer conclusions about the difference between the selling price (P) and the marginal cost (MC), since the less competition there is in a sector, the more the price can diverge from the marginal production cost. In other words, we can use the ratio between the sale price and the marginal production cost (mark up ratio) in order to gauge the intensity of competition in a sector. As a consequence, mark-up estimates of different sectors and different countries allowing for comparisons of the degree of competition, they should help in identifying which sectors and/or countries would benefit most from changes in legislation or regulation that affect competition.The approach adopted here is to estimate econometrically the level of market power by following the methodology developed by Hall (1988) and extended by Roeger (1995). This methodology is based on the hypothesis that in a situation of perfect competition the selling price is equal to marginal cost. The equality of marginal cost and price is essential for the efficiency of the economy since, first, competitive markets can achieve higher productivity levels, and second, competition provides consumers with products of higher quality, increased variety and lower prices (Rezitis and Kalantzi, 2013). However, this condition does not apply in a less competitive environment (i.e oligopoly markets, monopolies), since the price deviates from marginal cost. Therefore, the ratio between the selling price and marginal cost assesses the competitiveness of the market. However, while selling price is directly observable, the marginal production cost is not. This drawback was overcome by Hall (1988) and Roeger (1995) who both showed that under perfect competition, the nominal growth rate of the Solow residual is independent of the nominal capital productivity growth rate. It then follows that the coefficient linking the nominal 4 growth rate of the Solow residual to the nominal capital productivity growth is the Lerner Index defined as the ratio of the price minus marginal cost to priceDespite the voluminous amount of work on the topic, none of these studies -to the best of our knowledge-has examined this relationship for the Eurozone countries. Furthermore, unlike previous studies, we use an array of econometric techniques (OLS, 2SLS and bootstrap methods) to test the robustness of the results. The scope of this paper is that its empirical findings might be used as a benchmark to otherEuropean countries in order to asses the degree of competition in certain manufacturing and services sectors...

“…Their findings support the presence of relatively high markups across the manufacturing sectors and over time, thus suggesting that the Greek manufacturing industry operates under imperfect competitive conduct. Polemis (2014aPolemis ( , 2014bPolemis ( , 2014c also verified this outcome by concluding that the Greek manufacturing industry exhibits positive markups but it is less competitive compared to the service industry.…”

Section: Literature Reviewmentioning

confidence: 85%

The Effects of Competition, Liquidity and Exports on Markups: Evidence from the UK Food and Beverages Sector

Amountzias

2017

This study investigates the pricing decisions of the UK food and beverages sector over 2007-2016. The markup model formulated by Hall (1988) and Roeger (1995) is employed where market power is expressed in terms of pricing decisions reflected by the difference between the price level and the marginal cost of production. The analysis is conducted under three steps: the first step estimates the markup ratio of the UK food and beverages sector over 2007-2016; the second step provides the price-cost margin of the 32 4 digit level NACE Rev.2 constituent industries over 2007-2016; and the last step tests the relationship between cross-sectional estimates of market power and the structural effects of concentration, liquidity and exports over 2009, 2011, 2015 and 2016. The results suggest the presence of imperfect competitive conduct in the sector, while the three structural effects appear to have a significant influence on the pricing decisions of the UK food and beverages industries.