Corporate performance and market structure during transition in Hungary

ITransition started by a sudden collapse of corporate efficiency, as one important element of the transformational recession. It was followed by a consolidation period, with rapidly increasing efficiency and improving returns to scale. During this period performance was frequently improved by downsizing, thus fast improving corporate performance could not be translated into economic growth. This consolidation period ended in 1995-6, after that mean firm level efficiency only changed slowly. However, the March 1995 stabilization created a favourable environment for substantial investments into the Hungarian corporate sector. These investments largely increased the market share of the better performing firms and sectors, and the massive investments, together with substantial structural improvements brought about rapid economic growth. Market characteristics play a changing role during transition. Import competition, sectoral concentration and efficiency are important explanatory factors for the development of market share of a firm. Heterogeneity can be observed across sectors, according to ownership and to size. The differences, however, are not that large and were diminishing, what makes the hypothesis of the importance of market environment in the determination of corporate performance plausible. One of the major tasks facing a transition economy is to create the competitive environment of a properly functioning market economy. This paper attempts to analyse the relationship of market structure, market imperfections and corporate performance by mark-up pricing. Our results clearly indicate that substantial market imperfections exist in the Hungarian manufacturing sector. These imperfections can yield substantial rents. However, foreign owned firms have larger chance for exploiting market imperfections and can collect larger rents than domestic firms.