Entry barriers and markup ratios: evidence from OECD countries

Abstract

This article examines the effects of industrial natural entry barrier and country entry regulation on industrial markups for 13 OECD countries. We find that markup ratios are high in industries with high natural entry barrier and in countries with high-entry regulation. In addition, markups are high in high natural entry barrier industries in high-entry regulation countries. However, all these effects are not significant, thus implying that entry barrier may not have a strong effect on the market power or profitability.

Acknowledgments

We thank Mark Taylor (the editor) and anonymous referees for valuable comments and R. Fisman and V. Sarria-Allende for providing their data and OECD Publications Services for allowing us to use the markup data. Needless to say, the usual disclaimer applies.

Notes

¹ For a detailed survey on this literature, please refer to Schmalensee (1989).

² For details on the estimation of markup ratios, see Martins et al. (1996).

³ Klapper et al. (2005) use another set of turnover ratios obtained from Dun and Bradstreet database. We also checked the robustness of the result with that measure, and the results are the same. So we just focus on the measure from Dunne et al. (1988).

⁴ Compared with Fisman and Sarria-Allende (2004), the variation in entry regulation is much smaller since they include nonOECD countries like Indonesia (1.0499).