Firms' Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary

35 Pages Posted: 10 Oct 2004

See all articles by R. Dobrinsky

R. Dobrinsky

UN Commission for Europe - Economic Analysis Division; Centre for Economic and Strategic Research, Sofia

Laszlo Halpern

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS); Centre for Economic Policy Research (CEPR); Central European University, Economics Department

Gabor Korosi

Institute of Economics, HAS and CEU

Nikolay Markov

Centre for Economic and Strategic Research

Date Written: July 2004

Abstract

Under perfect competition and constant returns to scale, firms producing homogeneous products set their prices equal to marginal costs, which also equal their average costs. However, the departure from these standard assumptions has important implications with respect to the derived theoretical results and the validity of the related empirical analysis. In particular, monopolistic firms will charge a markup over their marginal costs. We show that firms' markups tend to be directly associated with the employed production technology, more specifically with their returns to scale. Accordingly, we analyze the implications for the markup ratios from the incidence of non-constant returns to scale. We present quantitative results illustrating the effect of the returns to scale index on the firms' price markups, as well as the relationship between the two indicators, on the basis of firm-level data for Bulgarian and Hungarian manufacturing firms.

Keywords: Markup pricing, market imperfections, return to scale, Bulgaria, Hungary

JEL Classification: C23, D21, D24

Suggested Citation

Dobrinsky, Rumen and Halpern, László and Korosi, Gabor and Markov, Nikolay, Firms' Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary (July 2004). Available at SSRN: https://ssrn.com/abstract=600661 or http://dx.doi.org/10.2139/ssrn.600661

Rumen Dobrinsky

UN Commission for Europe - Economic Analysis Division ( email )

Palais des Nations
Room 470 CH-1211
Geneva 10, Switzerland

Centre for Economic and Strategic Research, Sofia

7, Akad. Nikola Obreshkov str., vh. B, ap. 5,
Sofia 1113
Bulgaria
(+359 2) 971 2905 / 973 3267 (Phone)
(+359 2) 971 2871 (Fax)

László Halpern (Contact Author)

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS) ( email )

Toth K str 4
Budapest, 1097
Hungary

HOME PAGE: http://econ.core.hu/~halpern

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Central European University, Economics Department ( email )

Nador utca 9
Budapest, 1051
Hungary

Gabor Korosi

Institute of Economics, HAS and CEU ( email )

7621 Pécs, Papnovelde u. 22
Budapest, H-1112
Hungary
+36 1 319-3156 (Phone)
+36 1 319 3136 (Fax)

Nikolay Markov

Centre for Economic and Strategic Research ( email )

7, Akad. Nikola Obreshkov str., vh. B, ap. 5,
Sofia 1113
Bulgaria

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
96
Abstract Views
1,254
rank
285,738
PlumX Metrics