Corporate Market Power in Romania : Assessing Recent Trends, Drivers, and Implications for Competition
This paper explores firm-level heterogeneity to identify the underlying drivers of market power trends in Romania and the implications for competition and economic growth. The results show that the (sales-weighted) average markup in Romania increas...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/845981607007573350/Corporate-Market-Power-in-Romania-Assessing-Recent-Trends-Drivers-and-Implications-for-Competition http://hdl.handle.net/10986/34909 |
| Summary: | This paper explores firm-level
heterogeneity to identify the underlying drivers of market
power trends in Romania and the implications for competition
and economic growth. The results show that the
(sales-weighted) average markup in Romania increased by
around 15 percent between 2008 and 2017. A key driving force
behind this aggregate trend was the ability of a small
fraction of firms -- the top decile firms in the markup
distribution -- to increase their markups. These firms do
not seem to follow the typical superstar firms'
profile: they are smaller, less efficient, and less likely
to invest in intangible assets than other firms in the
markup distribution and overrepresented in less
knowledge-intensive service sectors (for example, the retail
and trade sector). This suggests that the increase in
markups in Romania might be associated with an environment
that is less conducive to competition. A decomposition
exercise shows that the increase in aggregate markups has
been driven mostly by incumbents rather than new entrants
and exiting firms, which could be interpreted as a sign of
consolidation of market power among existing firms. The
paper also finds that certain firm characteristics matter to
explain differences in markup performance: size, age,
research and development profile, export propensity,
location, and especially ownership. Further, the paper shows
that additional productivity dividends are associated with
increased competition in Romania. Overall, these findings
illustrate potential policy angles that need to be tackled
to enhance market contestability and boost productivity
growth, such as addressing regulations that restrict entry
and rivalry in the retail trade sector, which concentrates a
substantial proportion of high-markup firms, as well as
promoting competitive neutrality across markets where public
and private actors compete. |
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