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The Impact of European and Global Integration on the Mark-up of Prices Over Costs

Published online by Cambridge University Press:  26 March 2020

Dawn Holland
Dawn Holland*
Affiliation:
National Institute of Economic and Social Research
*
e-mail [email protected]
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Abstract

This paper develops a new approach for investigating the determinant of the mark-up of prices over costs. We estimate basic price equations around an expression for marginal cost that is derived from a cost minimisation problem, using a vector error correction approach to avoid endogeneity bias. Observed basic prices include the mark-up over marginal costs, and this mark-up is of interest to policymakers as an indicator of competition and ultimately as a determinant of the level of equilibrium employment. We look at the factors driving this mark-up, and in particular look at the role of EMU, as well as globalisation, the European Single Market and openness to trade and the introduction of the euro. We use a panel data set that includes both EMU and non-EMU members. The results indicate an important role for trade liberalisation in determining the mark-up, but openness itself and the introduction of the euro do not appear to have a significant role.

Keywords

Mark-upEMUglobalisationmarginal costE31F15L11
Type
Articles
Information
National Institute Economic Review , Volume 208: Ten Years of EMU , April 2009 , pp. 118 - 128
Copyright
Copyright © 2009 National Institute of Economic and Social Research

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Footnotes

∗

This work was financed in part by the European Commission, as part of a study on the impact of the euro on growth and employment. The results of this study are discussed in European Economy Economic Papers no. 318 (http://ec.europa.eu/economy_finance/publications). I would also like to thank Ray Barrell, Tatiana Fic and Martin Weale for comments and discussion during the preparation of this paper.

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