Abstract
This paper investigates the degree of market power in the Greek manufacturing and service industries over the period 1970–2007. The markup model developed by Hall (1988) and Roeger (1995) is taken into consideration where market power is expressed as the difference between the selling price and the marginal cost of production. The analysis will be conducted in three steps; the first step estimates the price-cost margin of the manufacturing and services industries over 1970–2007; the second step applies the cross section specification under which the markup ratio is obtained for the 23 manufacturing and 26 service 2-digit ISIC sectors of the panel sample; and the third step estimates the price-cost margin of the manufacturing and services industries for each year over 1973–2007 by employing the Hall-Roeger time series specification. The empirical findings suggest that both industries exert a positive markup ratio; however, the service industry appears to be less competitive than the manufacturing industry.
Highlights
The Greek markets have been criticized over the years because of their imperfect competitive structure
Even if domestic and foreign demand were boosted over this year, the results show that the price-cost margin did not rapidly increase but instead, it remained in a relatively high level
This study extended the market power investigation in the Greek manufacturing and service industries by employing the markup model formulated by Hall (1988) and Roeger (1995)
Summary
The Greek markets have been criticized over the years because of their imperfect competitive structure. The European Commission and the OECD are in favour of boosting competition in the most influential markets of any economy. Social welfare will tend to be equal to the optimal level proposed by perfect competition. Thereby, the markets will be operating efficiently by utilizing the production capabilities of the firms to their fullest. The main intention of this framework is similar to the Single Market Mechanism (SEM) which was introduced in 1987. It corresponds to the facilitation of an efficient market structure in which the setting price of the firms will tend to be equal to their marginal cost
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