Do we really know that the EU´s Single Market Programme has fostered competition? Testing for a decrease in markup ratios in EU industries.

Using a sample of 10 European countries and 17 industries covering the period 1981 to 1999, we test whether the EU's Single Market Programme had a significant procompetitive effect in terms of a reduction in firms' markups over marginal costs. In the framework of the markup estimation method suggested by Roeger (1995), we employ a panel approach for each of the sectors to test for both an instantaneous structural change between 1989 and 1993 as well as a continuous change in parameters using smooth transition analysis. The results do not indicate a pervasive pro-competitive effect of the Single Market. While markup reductions are found for aggregate manufacturing as of 1993, it is also suggested that markups increased in several sectors in the pre-completion period around the end of the 80s. This is likely to be due to strong increase in concentration and average firm size at the EU level in the second half of the 1980s. After all, the Single Market's net effect on markups is likely to be negligible if not positive. (author's abstract)