DP3777 Imports, Entry and Competition Law as Market Disciplines

Author(s): Bernard Hoekman, Hiau Looi Kee
Publication Date: February 2003
Keyword(s): competition law, domestic entry, import penetration, industry markup
JEL(s): F12, F13, L11
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3777

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.