Is More Competition Conducive to the Macroeconomic Performance in the Euro Area?

One of the main goals of the European Union, laid down, inter alia, in the Lisbon Strategy and in the "Europe 2020" Strategy, is to raise employment. One important means of supporting the creation of new jobs is to increase competition. In this paper, it is shown that on average the mark-up, i.e., the deviation of prices from marginal cost in the euro area still exceeds the levels observed in the UK and in the USA. After completion of the Single Market Programme in 1993, the mark-up has declined in the euro area and even more in the UK. Nevertheless, there is a strong cross-country variation between member countries, with a particularly high mark-up ratio found for Italy. Panel estimations show that total factor productivity growth, labour productivity growth and the labour market performance in the euro area could be improved by reducing the mark-up. This could be achieved by a proper institutional design. More competition could indeed improve the macroeconomic performance.