Empirica

, Volume 45, Issue 2, pp 339–365 | Cite as

Competition in the Portuguese economy: insights from a profit elasticity approach

Original Paper
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Abstract

The article uses the elasticity of profits to marginal costs, as in Boone (Econ J 111:1245–1261, 2008b), to measure the degree of competition in the Portuguese economy in a period characterised by the reallocation of resources towards the non-tradable sector and the accumulation of macroeconomic imbalances. Using firm-level data for the period 2000–2009, we find that there is lower competition intensity in the non-tradable sector. The least competitive markets within this sector lay in professional services, network industries and segments of retail trade. We also find that reductions in competition intensity are relatively widespread in the economy, but in terms of sales, gross value added and employment they are more substantial in the non-tradable sector. Results suggest that some network industries and other services exhibit low and a declining competition intensity in the period under analysis. In addition, the article discusses the coherence of the profit elasticity with classic indicators of market power, such as the Herfindahl–Hirschman index and the price-cost margin, and find that in more than half of the markets there is an agreement in the dynamics of competition intensity.

Keywords

Market competition Profit elasticity Portuguese economy 

JEL Classification

D43 L10 O50 
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Notes

Acknowledgements

The authors would like to thank the editor and two anonymous reviewers for their valuable suggestions and comments and Lucena Vieira for excellent computational support. All errors are the sole responsibility of the authors and the opinions expressed do not necessarily coincide with those of Banco de Portugal or the Eurosystem.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Banco de PortugalLisbonPortugal
  2. 2.Nova School of Business and EconomicsLisbonPortugal

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