Exploring the long-term impact of maximum markup deregulation

Abstract

Do product market reforms have a lasting impact on the market? How does the adjustment path to the new equilibrium look once these reforms are implemented? Does it matter whether reforms are conducted under weak macroeconomic conditions? We examine pricing equilibrium, three and five years after the repeal of the maximum wholesale and retail markup regulation, in an oligopolistic and vertically nonintegrated market in Greece, at the beginning of its economic crisis. Using a difference-in-difference framework, we show that market liberalization led to a significant decrease in both retail and wholesale prices and a shift to the left of the whole price distribution five years after the change, corresponding to approximately €212 million of added consumer welfare per year, or €1.06 billion in total over five years.