Editorial
On the occasion of the 65th birthday of Governor Klaus Liebscher and in recognition of his commitment to Austria’s participation in European monetary union and to the cause of European integration, the Oesterreichische Nationalbank (OeNB) established a “Klaus Liebscher Award”. It will be offered annually as of 2005 for up to two excellent scientific papers on European monetary union and European integration issues. The authors must be less than 35 years old and be citizens from EU member or EU candidate countries. The “Klaus Liebscher Award” is worth EUR 10,000 each. The winners of the third Award 2007 were Harald Badinger and Gert Peersman. Harald Badinger’s winning paper is presented in this Working Paper, while Gert Peersman’s contribution is contained in Working Paper 136.
In this paper Harald Badinger uses a panel approach to test whether the EU’s Single Market Programme has led to a reduction in firms’ markups over marginal costs. The analysis covers 10 EU Member States over the period 1981 to 1999, for each of three major industry groups (manufacturing, construction, and services) and 18 more detailed industries. The paper addresses explicitly the uncertainty with respect to the timing of the changeover and allows for a possibly continuous regime shift in a smooth transition analysis. Where regime shifts can be found, the velocity of transition is extremely high, making the linear model a justifiable approximation. The author also tests for discrete structural breaks in the time window from 1988 to 1996, taking up endogeneity concerns in a GMM framework. Markup reductions are found for aggregate manufacturing (though it is also suggested that mark-ups increased in some manufacturing industries in the pre-completion period at the end of the 1980s) and – less robustly – for construction. In contrast, markups have gone up in most service industries since the early 90s, which confirms the weak state of the Single Market for services and suggests that anti-competitive defence strategies have emerged in the 1990s in service industries.