Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 03-17: 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 ()
Additional contact information
Jozef Konings: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Patrick Van Cayseele: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Frédéric Warzynski: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

Abstract: This paper uses representative panel data of 1,701 Bulgarian and 2,047 Romanian manufacturing firms to analyze how price-cost margins are affected by privatization and competitive pressure. Privatization is associated with higher price-cost margins. This effect is stronger in highly competitive sectors, which suggests that the creation of competitive markets and privatization go together. This also suggests that privatized firms reduce costs, rather than increase prices, as in highly competitive markets firms are more likely price-takers. Import penetration is associated with lower price-cost margins in sectors where product market concentration is high, but in more competitive sectors this effect is reversed.

Keywords: Competition; privatization; firm performance; transition

JEL-codes: L33

31 pages, January 17, 2003

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