Abstract
Do product market reforms have a lasting impact on the market? How does the adjustment path to the new equilibrium look once these reforms are implemented? Does it matter whether reforms are conducted under weak macroeconomic conditions? We examine pricing equilibrium, three and five years after the repeal of the maximum wholesale and retail markup regulation, in an oligopolistic and vertically non-integrated market in Greece, at the beginning of its economic crisis. Using a difference-in-difference framework, we show that market liberalization led to a significant decrease in both retail and wholesale prices and a shift to the left of the whole price distribution five years after the change, corresponding to approximately €212 million of added consumer welfare per year, or €1.06 billion in total over five years.
Highlights
Given the secular decline in productivity growth and the weakness of the economic recovery after the financial crisis in many advanced economies, increased attention is being paid to the potential role of structural reforms as a way of restoring economic growth
We provide a detailed analysis of a product market reform by estimating the impact of the repeal of maximum markup regulation in the fresh fruit and vegetable market in Greece
We presented systematic evidence of the short-term, medium-term and long-term impact of a change in maximum markup regulation on prices
Summary
Given the secular decline in productivity growth and the weakness of the economic recovery after the financial crisis in many advanced economies, increased attention is being paid to the potential role of structural reforms as a way of restoring economic growth. After accounting for product and store characteristics, time trends and yearly price cycles (typical of fruit and vegetable products), deregulation provides some plausibly exogenous variation that allows us to estimate the causal impact of regulation This product market reform took place against the background of the Greek economy at the start of the longest recession of any advanced capitalist economy to date. It adds to the growing literature of ex-post evaluation of product market reforms and their impact on efficiency along the adjustment path (see, for example, Djankov et al 2002; Bertrand, Kramatrz 2002; Scarpetta, Tressel 2002; Carranza et al 2015; Knittel, Stango 2003) It informs the debate on recent investigations by the competition authorities (European Competition Network 2012) into suspected vertical and horizontal agreements in the food market.
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