The dynamics of industrial mark-ups in two small open economies: does national competition policy matter?

In this paper we investigate the impact of competition policy on the level and the dynamics of firm price cost margins in two European countries, Belgium and the Netherlands. We study three questions: (i) Did the changes in the competition law and policy that took place in Belgium in 1993 have an effect on the level and the evolution of the price-cost margins of firms? (ii) Are price mark-ups in the Netherlands, where there was no strict competition policy until recently, higher than in Belgium? (iii) Is openness (import competition) sufficient to discipline firm behaviour? We find that the introduction of a new competition policy in Belgium did not have any effect on the price mark-ups in Belgium. We also find that mark-ups in the Netherlands are higher than those in Belgium. Finally we find that import competition does not lead to lower price cost margins. We offer a number of explanations and implications. (C) 2001 Elsevier Science B.V. All rights reserved.