Competition and Inflation in Central, Eastern and Southeastern Europe: A Sectoral Analysis

Abstract

Using the Amadeus firm-level database, this paper examines sector-specific competition in a number of Central, Eastern and Southeastern European (CESEE) countries and its impact on price developments. Using returns on assets as our preferred indicator for the intensity of competition across 20 industries in 11 CESEE countries over 1999–2007, we find evidence for a downward impact of more intense competition on inflation in a number of sectors that are of considerable importance for overall consumer price developments in these countries. This finding implies that at least in some sectors CESEE governments may be able to contribute to ‘taming’ inflation by ensuring a high level of competition.