Working Paper: CEPR ID: DP3777
Authors: Bernard Hoekman; Hiau Looi Kee
Abstract: Since the early 1990s, numerous countries have adopted or strengthened competition legislation. In this Paper we investigate the impact of competition law on industry markups over time and across a large number of countries. We find both domestic and foreign competition to be major sources of market discipline in concentrated markets, but that the direct effect of competition law is insignificant. Once allowance is made for the endogeneity of both domestic competition (number of firms) and the adoption of a competition law, however, we find that competition laws have an indirect effect on equilibrium markups by promoting a larger number of domestic firms.
Keywords: competition law; domestic entry; import penetration; industry markup
JEL Codes: F12; F13; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Domestic competition (L19) | Industry markups (L11) |
| Competition law (K21) | Number of domestic firms (F23) |
| Number of domestic firms (F23) | Industry markups (L11) |
| Competition law (K21) | Industry markups (L11) |
| Foreign competition (F23) | Industry markups (L11) |