Tariffs, Entry Regulation and Markups: Country Size Matters

Abstract Actual and potential competition is a powerful source of discipline on the pricing behavior of firms. This paper extends the empirical literature on the pro-competitive impact of policy reforms by investigating the effects on price markups of barriers to both domestic and foreign entry in a sample of developed and developing countries. While both are found to be important determinants of industry markups, we find that country size affects the impact of tariffs and domestic entry regulation. Country size dampens the impact of the former and strengthens the effect of the latter.