Development of Competition and the Micro-Level

The use of traditional industry-level profitability indicators for assessing the state of competition is problematic for two reasons. First, short-term variation reflects business cycles more than it does the impact of competition policy. Second, rough industry-level indicators hide different mechanisms that are dependent on competition but may affect profitability in opposite directions. In this analysis both problems are avoided by using firm-level Financial Statement Statistics of Statistics Finland over the years 1995-2006 and by applying a decomposition method. With these tools the micro-level sources of industry-level profitability changes have been examined over a long-run period. The findings provide support to the general view having emerged from the earlier micro-level analysis that competition has developed in a favorable way in Finland until the end of the 1990s. On the other hand, the results reveal interesting differences between periods, sectors and regions, which describe challenges of competition policy in the future