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, Belg ium and the Netherlands. We study three questions: (i) Did the changes in t he competition law and policy that took place in Belgium in 1993 have an ef fect 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 competit ion policy until recently, higher than in Belgium? (iii) Is openness (impor t competition) sufficient to discipline firm behaviour? We find that the in troduction of a new competition policy in Belgium did not have any effect o n the price mark-ups in Belgium. We also find that mark-ups in the Netherla nds are higher than those in Belgium. Finally we find that import competiti on does not lead to lower price cost margins. We offer a number of explanat ions and implications. (C) 2001 Elsevier Science B.V. All rights reserved.