European Business Schools Librarian's Group

Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Market Structure and Competition in Transition:Results from a Spatial Analysis

Martin Labaj (), Karol Morvay (), Peter Silanic (), Christoph Weiss () and Biliana Yontcheva ()
Additional contact information
Martin Labaj: Department of Economics, Vienna University of Economics and Business
Karol Morvay: Department of Economic Policy, University of Economics in Bratislava
Peter Silanic: Department of Economic Policy, University of Economics in Bratislava
Christoph Weiss: Department of Economics, Vienna University of Economics and Business
Biliana Yontcheva: Department of Economics, Vienna University of Economics and Business

Abstract: The present paper provides first microlevel (indirect) empirical evidence on changes in the determinants of firm profitability, the role of fixed and sunk costs, as well as the nature of competition for a transition economy. We estimate size thresholds required to support different numbers of firms for four retail and professional service industries in a large number of geographic markets in Slovakia. The three time periods in the analysis (1995, 2001 and 2010) characterize different stages of the transition process. Specific emphasis is given to spatial spill-over effects between local markets. Estimation results obtained from a spatial ordered probit model suggest that entry barriers have declined considerably (except for restaurants) and the intensity of competition has increased. We further find that demand spill-overs and/or the effects associated with a positive correlation in unobservable explanatory variables seem to outweigh negative spill-over effects caused by competitive forces between neighboring cities and villages. The importance of these spatial spill-over effects differs across industries.

Keywords: entry thresholds, competition, Slovakia, transition, geographic markets

JEL-codes: L22; D22; M13; R11 February 2016

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