Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/74904
Authors: 
Konings, Jozef
Van Cayseele, Patrick
Warzynski, Frederic
Year of Publication: 
2002
Series/Report no.: 
LICOS Discussion Paper 125
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 perfirmance, the estimation method we use deals with potential endogeneity problems that are associated with estimating firm perfirmance, 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.
Subjects: 
market power
privatization
firm performance
transition
JEL: 
L1
L33
P3
P5
Document Type: 
Working Paper

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