Discussion paper
DP664 Market Concentration and Competition in Eastern Europe
A key feature of Soviet-type economies is the excessive concentration of production and the skewed size distribution of enterprises. This is the root cause of the `soft budget constraint' and a natural outcome of the political economy of these countries. Given entrenched political support for a system which favours producers relative to consumers, it will be hard to pursue an active competition policy, though it is essential for successful reform. We examine a hypothetical restructuring of Polish state enterprises and argue that this should be undertaken before they are privatized. Hungary appears to have started such a process already.
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