Price-cost margin and bargaining power in the European Union
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Price‑cost margin and bargaining power in the European Union Ana Cristina Soares1,2 Received: 9 May 2018 / Accepted: 2 May 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract Using firm-level data between 2004 and 2012 for 11 countries of the European Union (EU), we document the size of product and labour market imperfections within narrowly defined sectors including services which are virtually undocumented. Our findings suggest that perfect competition in both product and labour markets is widely rejected. Levels of the price-cost margin and union bargaining power tend to be higher in some service sectors depicting, however, substantial heterogeneity. Dispersion within sector and across countries tends to be higher in some services sectors assuming a less tradable nature which suggests that the single market integration is partial, particularly relaxing the assumption of perfect competition in the labour market. We report also figures for the aggregate economy and show that Eastern countries tend to depict lower product and labour market imperfections compared to other countries in the EU. Also, we provide evidence in favour of a very limited adjustment of both product and labour market imperfections following the international and financial crisis. Keywords Market imperfection · Market structure · Nash bargaining · European Union
The author would like to thank all country teams from CompNet without whom this paper would not be possible. The author would also like to thank Paloma Garcia, Eric Bartelsman, Francesco Di-Comite, Sabien Dobbelaere, Catherine Fuss, Jose Montero, Nuno Alves, António Antunes, Isabel Horta Correia, João Amador, Paulo Júlio, Carlos Robalo Marques along with seminar participants at 44th Annual Conference of the European Association for Research in Industrial Economics (EARIE), the European Central Bank Seminar Series and two anonymous referees for useful suggestions. The opinions expressed in this article are the sole responsibility of the author and do not necessarily reflect the position of Banco de Portugal or the Eurosystem. Electronic supplementary material The online version of this article (https://doi.org/10.1007/s0018 1-019-01703-7) contains supplementary material, which is available to authorized users. * Ana Cristina Soares [email protected]; [email protected] Extended author information available on the last page of the article
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JEL Classification L10 · D40 · J50
1 Introduction It is well established that product market competition is key to achieve a static efficient allocation of resources. In a broad range of models, trade liberalization intensifies competition intensity in the product market which increases allocative efficiency and welfare (see, for instance, Edmond et al. 2015; Arkolakis et al. 2018 on theoretical work and Levinsohn 1993; Krishna and Mitra 1998 and more recently Lu and Yu 2015 and Brandt et al. 2017 on empirical work). Measuring competition intensity is particularly r
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