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European Integration and the Functioning of Product Markets

European Integration and the Functioning of Product Markets

Edited by Adriaan Dierx, Fabienne Ilzkovitz and Khalid Sekkat

The book reveals that European product market integration has a significant impact on the conditions of competition, the strategies of companies and the structure of industry. It adds a quarter of a percentage to annual GDP growth rates and has not led to an increased exposure of the EU to asymmetric shocks. However, the book argues that further improvements in the functioning of European product markets are needed in order to improve the EU’s growth performance over the next decade. Invaluably, the book provides not only current information about Europe’s achievements in economic integration but also methodology to assess the outcome of economic integration in other regions of the World, such as NAFTA, MERCOSUR and ASEAN.

Chapter 4: Industrial concentration, market integration and effi ciency in the European Union

Reinhilde Veugelers

Subjects: economics and finance, industrial economics

Extract

4. Industrial concentration, market integration and efficiency in the European Union Reinhilde Veugelers* 4.1 THE IMPACT OF MARKET INTEGRATION ON INDUSTRY CONCENTRATION During the last decade markets have become increasingly globalised and national production systems more and more globally integrated. Many elements have positively influenced the level of industry globalisation during the late 1980s and 1990s, such as convergence in demand, advances in transportation and globalisation of business services, to name a few (Yip, 1995). In this process of world market integration, the formation of regional economic blocs such as the EU has played an important role. Regional market integration within the EU was critically influenced by the 1992 Single Market Programme (SMP), and further strengthened by monetary integration. The process of market integration systematically changes the nature of competition, and therefore the structure and performance of industries and firms. Following Smith and Venables (1988), market integration can be seen as (i) a reduction in trade costs between national markets, and/or (ii) a complete displacement of segmented national markets by a single aggregate market (in which price discrimination is no longer possible). The beneficial effects of market integration on the EU economy come from lower prices and increased production. Amplified competitive pressure is an important catalyst for beneficial effects, not only directly, by reducing market power, but also indirectly, by eliminating cost inefficiencies. Hence, a cornerstone in the evaluation of market integration is the effect on competition and market concentration. Within the academic...

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