D12 -Consumer Economics: Empirical Analysis < D1 -Household Behavior and Family Economics < D -Microeconomics

Keywords: pricing, tickets, entertainment, e-bay

E-Baying for Blood? : Non-competitive flexible pricing in entertainment ticketing: Some demand side evidence* 1. Introduction and literature review

The models used by Courty lead to an outcome where the only subgame perfect equilibrium is one where the promoters sell enough tickets to satisfy the 'diehard' fans and the number of 'busy professionals' willing to buy enough tickets at the starting price relevant to the diehard fans. This leaves incentives for brokers to buy early at the diehard fan price and sell later to busy professionals at a 'late' time just before the event. He assumes these two categories 'diehard fans' who plan their attendance well in advance and 'busy professionals' who are marginal consumers who have heavy time constraints, and a high value of time in alterative uses and postpone their decision until near the event. The longer they delay, the more scarce tickets become and thus brokers may be able to charge them more than the initial price. Of course, the initial price is more than some of this type of consumer would have been willing to pay at this time. Courty assumes Bertrand competition between the brokers (scalpers) in the resale market. However it is still necessary to assume sort of differential between brokers and the 'official' ticket sellers in terms of efficiency in handling late pricing. This is attributed to greater flexibility. Perhaps then the important economic question is whether there is some private X-inefficiency on the part of the licensed ticket vendors who clearly do have monopoly power yet have, for decades, shunned the opportunity to cream off the consumer surplus in the way that economics textbooks would predict they should.

In other words, why should the primary market sellers be less flexible? One constraint in this X-efficiency [see [START_REF] Cameron | The Economics of Sin: Rational Choice or No Choice At All? Edward Elgar[END_REF]] is a moral factor that the sellers have lived in fear of a bad public image if they sell at auctioned prices. Technological change is one factor which tends to erode moral condemnation over a period of time. The rapid technological change in ticket sales due to internet providers has make it harder than ever to control. ticket-touting as is shown in the persistent failure to prevent tickets to Effectively, a corner has been turned in the sale of tickets to the point where there is a danger that extensive measures to prevent touting would cause cost rises leading to an increase in the price of tickets sold at fixed prices by legitimate sellers.

Although technological change has made reselling of tickets at highly marked -up prices much easier there has been surprisingly little increase in attempts to regulate it. In the USA there are no federal laws directly governing ticket resale, but several states and a number of municipalities prohibit the reselling of tickets for an amount in excess of the face price. According to the National Conference of State Legislatures (at http://www..ncsl.org/programs/lis/ticketscalperlaws.htm) at least sixteen states prohibit resale of tickets: Arizona, Arkansas, California,. Connecticut, Delaware, Florida, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, New Mexico, Ohio, Rhode Island and Wisconsin. A further seven states (Alabama, Georgia, Illinois, Massachusetts, New Jersey, New York and Pennsylvania) require a license to broker tickets, or else reselling is considered a crime. Four states--North Dakota, Ohio, South Dakota and Virginia--grant localities or municipalities the ability to license or prohibit resale of tickets. Even where the activity is regulated the status and penalties are very slight.

One probable consequence of widespread touting is that legitimate sellers will switch increasingly to auction pricing. Outrage greeted the proposals put forward by the Ticketmaster agency in the UK in summer of 2003 to abolish set price conventions. Their aim was to go over to a process of auctioning tickets. Despite the public moral objections, by October 17 th , 2003 further steps took place when Universal agreed with the well-known auction site 'E-bay' to effectively auction Universal products, including concert tickets, for artists contracted to Universal. So, it seems that there may well be a significant change in the way tickets are sold for live entertainment. Little empirical evidence exists to indicate how the public will respond to this change. Most papers on this subject are theoretical, speculative or anecdotal. There is some literature based on list ticket prices. [START_REF] Krueger | The economics of real superstars: the market for rock concerts in the material world[END_REF] performs a regression for U.S.A, rock concert ticket pricing primarily focusing on the 'superstar' phenomenon, which he proxies using print space given to an artist in the Rolling Stone Encyclopaedia of Rock and Roll in an attempt to explain the rapid growth in prices in the 1990's. This surge in prices has been partly attributed to artists and their agents seeking compensation for falling record sales due to the internet and low cost high quality digital copying and compression. Krueger's paper does not contain any measures which would enable us to tell whether the movements in prices in the 1990's represented some kind of adjustment by the primary sellers to the higher prices in the secondary ('scalping') markets nor indeed which factors lead individuals to want to pay very high prices given that it is possible that the proxy for superstardom is also capturing some other unmeasured attributes.

A number of consequences may follow from freeing up the ticket sales market. For example, if people do strongly object to the process they could refuse to bid and force the sellers to drop prices to previous conventions of the norm for set prices. If individuals then engage in no special effort to get ahead in the queue for excess demand events then the question of which person gets a ticket would become a lottery. This type of response faces problems of externalities as any given individual has to trust thousands of other individuals not to give in and outbid them thereby denying them access to a commodity for which they are willing to pay more than the norm in terms of previous fixed prices. This paper gives some exploratory results from estimating a consumer surplus type equation which features a number of economic and demographic variables as regressors. There is no attempt to measure any kind of 'superstar' effects as we deal with an individual's hypothetical offer which will already be anchored to their own superstar premium.

We calculate income elasticity for the maximum surplus that could be perceived by individuals from being allowed to buy at a set price. The results also show that those who attend the cinema are significantly less inclined to generate a surplus in flexible price events markets whilst young adults offer to pay quite a large amount more for their heavily desired entertainment. This suggests that part of the burden of a shift in ticket pricing methods may be borne by the parents of young adults.

II Method.

This paper uses a survey instrument to estimate a consumer surplus equation for attendance at live performance events. The design of the survey was eclectic in that it was based around economic ideas but making allowance for some psychological factors in both consumer decision-making and responses to questionnaires.

We start from the premise of a simple microeconomic model where consumers derive utility from live entertainment events as a function of the goods characteristics inherent in such events. These characteristics will include such things as stimuli from light and sound, spectacle, content of material (e.g. song, play, etc.), and performance skills. There will also be external benefits in the pleasure audience members derive from observing or meeting other audience members. Some of these characteristics will be increasing in the size of audience but there will at some point be congestion.

Utility may be derived more directly from 'socaibility' in that the marginal benefit of a performance may be higher from attending an event with a group of like-minded friends.

There will be implicit (unobserved) prices for each of these facets that contribute to the surplus that an individual receives from being allowed to buy at a fixed price.

Individuals will face constraints of the overall ticket price, their wage rates, other prices and time constraints. The value of time is one reason for people to offer to pay in excess of ticket prices as three will be costs of search in a market where tickets are likely to become scarce rapidly. The presence of risk and uncertainty in the form of possibly not getting a ticket may lead to a further loss of utility due to 'regret' providing a further incentive to pay a higher ticket price. Part of the regret function arises from social influences in the form of 'network externalities' viz. the person is excluded from being part of a meaningful social event. This further brings utility losses in terms of not being able to talk to other people about having been there.

As specific performers are an important part of the surplus in a live event situation, there is also risk and regret as these performers may cease to perform as individuals or as a group or they could die or become unable to perform before the next event. Less catastrophically, the performer's quality of live output may decline over the course of their career and an individual may suffer regret that they did not get to see them at their peak. This 'maybe the last chance' risk/regret factor would be expected to drive up the surplus which can be captured from concerts by such artists as Bob Dylan and the Rolling Stones as they approach pensionable age. It is a factor in driving their concert The relationship of MAXP to income and other wealth proxies is a straightforward derivation from standard microeconomic theory in that a person would be expected to be willing to pay more, ceteris paribus, the greater the resources which they command. However the situation is more ambiguous in terms of the relationship between RSNP and income/wealth proxies as an individual may alter their notions of reasonable price as income rises at different rates. There is no obvious expectation as to whether the rate of adjustment should be 1, more than 1 or less than 1. Of course the relevant factor is whether this rate is greater or less than the rate at which MAXP responds to income. Unfortunately there is no obvious prediction about these comparative magnitudes. Education, home ownership and not being in work are included as additional wealth proxies.

Presence of children is expected to have a negative coefficient due to the cost effect on available discretionary income for recreational purposes. The taste variables consist of proxies for aspect of the person's entertainment production process. This covers dummies for type of events attended-we might expect that the comparatively low price of cinema versus the comparatively high price of rock concerts might anchor a person's judgment about their maximum willingness to pay. Rock music performances are also more likely to be sources of willingness to pay excess prices because of uniqueness (a film can usually be seen fairly easily on another night in a region) and the forms of regret at not consuming mentioned above.

We also include a measure of the total number of live entertainments attended which we would expect to have a negative effect as it shows a preference for entertainment per se rather than slavish devotion to specific events/performers.

Sociability is also proxied in the taste variables by the use of variables to measure whether the person went alone and the size of the party in which the person attended.

The variable for 'size of party' is expected to have a negative coefficient, as the more sociable an individual is the less likely they will be to develop, ceteris paribus, exclusive desires for specific events/performances which drive up the willingness to pay. By the same token we would expect a positive coefficient on the dummy for 'normally attending events alone'.

The final taste proxy is the amount of television watched. If we treat television purely as a rival entertainment good (notably also one in which marginal viewing costs are zero in certain ranges) then we would expect a negative coefficient as a taste for television watching would be expected to reduce willingness to pay for live entertainments. The content of television is also more predictable than the content of live performances and hence television oriented entertainment consumption patterns may also be indicative or risk aversion. Two research students who filled in the questionnaire whilst they spoke to the respondents conducted the interviews. Interviews were conducted on two days a week, in the central shopping areas, in the period around lunch time in order to obtain a representative sample. As there seemed to be some demographic biases in this method, some interviews were conducted on Saturdays in an attempt to upsample the under represented groups.

The number of useable interviews obtained was 106 from Harrogate and 104 from Leeds. Not all questions proved equally usable as some elicited responses that were of little use and tended not to be filled in by the interviewers.

Questions were deliberately kept simple and the overall number of questions was kept to a fairly low number in order to ensure accurate responses. Thus, we eschewed any complicated scenario questions of the 'What would you do in the circumstance of a, b, c, d etc being in operation' type. The questions used were either scales of preference, straightforward requests to state a money amount (sometimes in intervals) or such things as age, gender, marital status etc.

Table 1 shows the full list of variables with their means, and standard deviations. The sample used is smaller than the full sample due to missing observations for some variables.

The chief variable of interest in this paper is the hypothetical maximum price variable which essentially makes this willingness to pay/contingent valuation study. This is a popular area of literature especially on environmental topics but there have been increasing criticisms of the methodology which we should briefly consider. [START_REF] Hey | Do subjects remember the past?[END_REF] consider the question of the order in which respondents are asked questions in fee-based experimental studies. Their finding that treating individual questions as separate seems to be valid implies that the questionnaire instrument here might reasonably be assumed to be invariant to the question order. [START_REF] Bhatia | From evidence to calibration for starting point bias: willingness to pay for treated mosquito nets in Gujarat, India[END_REF] provides evidence of starting point bias in willingness to pay responses. In a way this is not surprising as increasing the base line discretely is going to take it out of some people's cut off points. In the present study we have also asked individuals to give estimates of their perceived normal price 'for an evening out' and for a ticket at local non-profit theatre. These could be interpreted as proxies for respondents setting their own base line comparison although the variables have not been entered into the regression below.

There is, of course, the classic problem in these kinds of study that the hypothetical situation presented may be unrepresentative of behaviour in real situations. A recent study [Johannesson et al. (1998)] has attempted to deal with this by offering boxes of Belgian chocolates to groups of Swedish students in two different ways. One where the situation is framed as real, and the other where it is framed as hypothetical. They find that the hypothetical scenario yields higher values than the 'real' one. In this paper we are not trying to attach accurate values, per se, to the maximum price, for policy formulation purposes. Rather we are engaged in an exploratory analysis of the determinants of hypothetical maximum prices on the assumption that there will be some correlation between the results of this and the situation with actual values. Most variables are measured in a fairly conventional way and are unambiguous in their interpretation. The age variable is in dummy form derived from an age range question as it was felt people might be unhappy about a direct age question in such a data collection context. The one variable, which merits some further discussion, is the income variable (GROSSINC). This was the response to a question asking people to give the gross income of the decision-making unit to which they belong rather than their own net disposable income. This avoids the difficulties of people being unable to unravel the complexities of tax affairs and intra-household income transfers

IV. Estimating equation <<<this section is okay>>

It is convenient to simply assume that equation ( 1) may be approximated by a linear function with a classical disturbance term added so that we can simply use OLS to generate the estimates, in the first column, in Table II. We also provide a semi-log equation in the second column of the same table by using the natural logarithm of the Maxgap variable. These equations are fairly easy to interpret.

In the linear estimates, most of the coefficients are the direct monetary increase (in £) in the gap of maximum price one would pay over perceived 'reasonable price' due to the named characteristic as most variables are dummies. In the semi-log equation the analogous coefficients are (biased) estimates of the percentage change attributed to the variables.

There are only four continuous variables-television hours watched (Tvhrs), total number of events attended last year (TOTGOUT), number of others in party (NUMPARTY) and income (GROSSINC). In the linear equation the coefficients on these will be the amount of change in price gap (in £) due to one more hour of television, one more event or one more £ of income per annum, respectively. In the log equation these will be approximately the percentage changes attributed.

V Results

Linear and semi-log estimates of equation ( 1) are given in Table II.

<<<TABLE 2 ABOUT HERE>>

There are a large number of variables that are not significant in either equation.

This applies to all the proxies for sociability, the location dummy (Leeds), age dummies with the exception of that for the 19 and under group, the demographic variables (gender, marital status, children) and the rival activity measure (amount of television watched) and most of the additional income/wealth proxies with the exception of education.

There are statistically significant effects on the price surplus measure from the type of entertainment diet the person prefers. These effects go in the hypothesized direction. The cinema visitors show a substantial decrease in offered surplus price whilst the rock audience shows a substantial increase.

It is notable that the point estimate for the former outweighs the latter in both equations indicating that individuals who span both audiences will offer slightly less. The size of the point estimates is quite large. For cinema, the linear equation shows an estimated decrease of £4.90 in the offered surplus whilst the semi-log suggests a decrease of 57%. For rock music, the linear equation shows an estimated increase, in offered surplus, is £3.18 and the other equation suggests an increase of 44%. These results are strongly significant with the exception of that for the rock music dummy in the linear equation. for which there is a statistically significant effect . This is the 15-19 year olds where we see an increase in the offered surplus. The't' ratio on this is quite high in the linear equation but is somewhat weaker in the semi-log equation.

As a point of reference, we may note that (at £8.85) the surplus 'gap' is at least twice the price of a normal full-entry cinema ticket in the regions where the survey was carried out. It should be borne in mind that this may represent disposable income availability from access to parental income and/or be receiving implicit subsidies through living at home.

Finally, we turn to the most fundamental economic variable in the modelthe gross income variable. This is positive as expected. The impact is highly statistically significant judging by the't' ratio in both equations. The point estimate is small in both cases but this is due to the units of measurement.

We should recall that the coefficient is not the income effect on maximum price willing to be paid rather it is the gap between this and the perceived reasonable price of an evening out. Thus when we go on to calculate an income elasticity which is income elasticity for surplus not elasticity for maximum price offer per se. The point estimate for income, in the linear equation turns out to be positive (0.00002164).

We calculate the income elasticity at the means of the data, which requires us to multiply by 46833.9695/11.321 giving an elasticity of 0.0895 which although small numerically is quite substantial in terms of the issue being analysed. That is the offered price surplus is rising by over a 1/12 of the percentage rise in income.

VI. Conclusion.

There are exciting new developments in the field of pricing of live arts and entertainment. It looks as if we may finally see the end of the traditional structure of a primary legal market with fixed prices supplemented by a secondary Technological progress, and the internet, in particular, has advanced the position of the secondary trader. E-bay executives are prone to claim that those who retrade tickets on its sites are innocent of profiteering motives though it is hard

to see what empirical evidence this is based on. They do not appear to be taking any actions to vet such activity. The expanded scope for entrepreneurial retrading provokes x-inefficient primary traders into changes in their ticketing practices.

In addition, the same technological changes are available to primary sellers who can seek to operate a greater amount of price differentiation than has been traditional.. This could, for example, take the form of increasing time variant pricing -which would accord with the notion of extracting surplus from the 'busy professionals' in Courty's model. In the limit, the primary sellers could gravitate to full auction pricing for a great range of events, not just huge festivals or stadium concerts and in theory could eliminate much of the secondary market. We should note in passing that future research which addresses this might take note of the fact that entertainments products do significantly differ from airline tickets in that the market for alternatives may be much thinner if the person does not get the ticket. In addition there is regret aversion mentioned above viz. a person who wants to fly to Peru might have greater certainty that it is still going to be there whilst the Rolling Stones may become too infirm to tour or Duran Duran's archetypal line up may become disenchanted with each other and split up again. The unpredictability of this regret aversion may make it difficulty to distinguish between Courty's stereotypes of diehard fans and busy professionals.

This paper indicates that there are substantial gains to be made by ticket auctioneers given the size and significance of the income elasticity and the forward by [START_REF] Courty | Some economics of ticket resale[END_REF] this would lead to more ticket touting if the artist picks up in popularity in the period leading up to a concert if the venues are small relative to the expanding demand. In essence what would have happened is that uncertainty has lead to promoters setting prices with respect to sub-optimal size venues. If the event is not relocated to another venue then economic theory would suggest that the original ticket holders have increased incentives to sell on their tickets. However this is constrained by the presence of prestige value in the event that did not exist at the time of purchase hence it may prove impossible to trade with the original consumers at feasible prices for secondary dealers. .

Finally it is worth commenting on the distribution of answers to price questions as this is also of wider methodological importance in willingness to pay studies. It appears that the respondents understood the price questions and it is probably more accurate to ask perceptual questions than ones based on memory.

The respondents did not come to these questions 'cold' as they were shown a visual analogue scale asked to point at locations on it which depicted their preferences.

Intuitively one would probably expect this to lead to a better spread of answers than This paper gives some exploratory results from estimating a consumer surplus type equation which features a number of economic and demographic variables as regressors. We calculate an income elasticity for the maximum surplus that individuals would ever perceive themselves to be getting by being allowed to buy at a set price. The results also show that those who attend the cinema are significantly less inclined to generate a surplus in flexible price events markets whilst young adults offer to pay quite a large amount more for their heavily desired entertainment. This suggests that part of the burden of a shift in ticket pricing methods may be borne by the parents of young adults.

  music festival at Glastonbury from turning up on the E-Bay website.

  level far out of proportion to their scope for selling newly recorded material.We attempt to directly measure the overall surplus an individual might receive from a fixed price event by collecting two subjective measures of prices: one being the maximum price the person would every pay for an event they wanted to go to[MAXP], and the other what they consider to be a 'reasonable price' for an 'evening out' [RSNP]. This gives arise to a 'price gap' equation of the form (1) MAXP-RSNP = f (Income, other wealth proxies, Age, gender, marital status, education,children, tastes, disturbance term)

  was used in face-to-face street interviews in the towns of Harrogate and Leeds in North Yorkshire, England in July and August, 2003.

  questionable but weakly policed, 'tout' or 'scalping' activity.

  rock audience to bid up live entertainment goods on account of their uniqueness characteristics. Although the research focus has been on the upward pressure on particularly rock concert prices we should not forget that such industries have a strong inflow of new artists who have an incentive to set low prices in order to further exposure and develop their careers. Within the context of the models put

My thanks are due to the support of the British Royal Academy in funding this work.

  are at it. Between it and the next cluster point at 30 pounds there are only slightly more responses than there are at 50. Just below 10% of the responses are at 30 pounds. There are significant clusters at 15, 20 and 25 pounds with no one giving figures in between these. In total almost 66% of the responses are at these three points. The final significant cluster point is at ten pounds where almost 7% of the sample is. Not surprisingly, the reasonable price distribution is much more compressed but it still shows clustering. The stated prices all fall in intervals of 2.50 This is five times the unit interval stated during the survey. There is profound clustering at quite low prices. 33% of the responses are at 7.50 and there is then a gap of 5 (10 times the stated unit interval ) before another 35 % of the responses are .The upper quartile points are not particularly high being around 28 for the maximum price and 15 for the reasonable price.

	TOTGOOUT (total number of evenings out last year	9.374	13.26	131
	Name/definition	Mean	St. Dev.	N
	F o r F o r F o r F o r F o r F o r
	P e P e P e P e P P Table I: Descriptive Statistics e e
	e r R e v i e The general feeling one gets from the above information is that consumer e r e r e r MAXGAP= difference between maximum would pay and perceived reasonable price (in pounds) 11.832 10.822 e r e r surplus/contingent valuation/ willingness to pay/ contingent valuation studies face problems in situations where there are relevant market prices. That is, individuals may 131 well be anchoring their stated responses to the sort of discrete price points established R e v R e v R e v LEEDS =1 if Leeds 0=Harrogate 0.24 0.427 131 TVHRS=number of hours of television per week 18.813 13.343 131 ALONE=1 if normally goes out alone 0.1145 0.319 131 NUMPARTY= number of persons usually in party 3.966 3.161 131 R e v R e v by manufacturers. i e i e i e FEMALE=1 if female 0.5725 0.497 131 MARRIED=1 if married 0.382 0.382 131 i e i e
	NOTES. GROSSINC=gross income of family unit p.a. (pounds) GOCINEMA (went to cinema in last year)	w w w w 46833.97 101552.997 131 0.6641 0.474 131 w w
	CHILDREN(has dependent children in household	0.382	0.501	131
	U19 16-19 years old	0.1374	0.346	131
	* Acknowledgements. U24 19-24 years old	0.1985	0.4	131
	U44 35-44 years old 'cold' questioning. Despite this there is profound clustering of responses at distinct 0.1069 0.31 131 U55 45-54 years old 0.0687 0.254 131
	points.. U65 55-64 years old	0.1603	0.368	131
	O65= 65+ years old	0.1832	0.388	131
	GOROCK (went to rock concert in last year)	0.1603	0.368	131
	DEGPLUS (has first or higher degree)	o.267	0.444	131
	OWNHSE (owns own house)	0.542	0.5	131

For maximum prices the notable upper cluster point is 50 pounds where just below 6% of the responses are. . There are fewer responses above this point than there

Table II ; OLS estimates of a Linear Ticket Price Surplus equation

 II

	Page 21 of 23		Submitted Manuscript Submitted Manuscript	Page 22 of 23
				(0.61)	(0.055)
	O65			2.27	-0.14
	Dependent Variable: Independent Variable Degplus E-Baying	Maxgap (0.53) (1.49) Coefficient (abs t-ratio in brackets) (0.46) Ln(Maxgap) (1.78) 3.81 0.33
	Constant Ownhse			15.74 -4.15 (3.3) (1.71)	-0.12 2.45 (7.16) (0.68)
	Leeds Totgout			-3.58 -0.038 (1.33) (0.44)	-0.0028 -0.28 (1.45) (0.46)
	Tvhrs Alone	R 2 N	F o r F o r	-0.011 (0.15) 0.63 (0.19) 0.191 131	-0.0023 (0.41) 0.093 (0.34) 0.229 127
	Numparty Female Married	-0.1 (0.31) -2.18 (1.07) e P P e 0.3 (0.14) e r e r	0.0053 (0.23) -0.0032 (0.02) -0.062 (0.41)
	Children Grossinc Gocinema Gorock		1.18 (0.45) 0.0000216 (2.13) -4.9 R e v R e v (2.09) 3.18 i e i e (1.01) w 0.0000016 0.32 (1.68) (2.2) -0.57 (3.33) 0.44 (1.94) w
	Nojob			-1.3	-0.11
				(0.5)	(0.61)
	U19			8.85	0.44
				(2.17)	(1.52)
	U24			-0.6	-0.022
				(0.18)	(0.09)
	U44			1.52	-0.11
				(0.36)	(0.35)
	U55			-0.34	-0.25
				(0.07)	(0.71)
	U65			2.47	-0.016

Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK

for Blood? : Non-competitive flexible pricing in entertainment ticketing: Some demand side evidence*

	Samuel Cameron
	Professor of Economics
	University of Bradford
	ABSTRACT

Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript


Barbara M Roberts

Steve Thompson

Prospects < P2 -Socialist Systems and Transitional Economies < P -Economic Systems, O47 -Measurement of Economic Growth|Aggregate Productivity < O4 -Economic Growth

Keywords: L11 -Production, Pricing, and Market Structure|Size Distribution aggregate productivity, entry and exit, reforms in Eastern Europe, Polish manufacturing

This paper explores the impact of turnover and restructuring on labour productivity in the Polish economy over the period 1988-1993. Changes in aggregate productivity are decomposed into elements corresponding to productivity growth among survivors, market share growth by survivors and the contributions of entering and exiting firms. The traditional entry and exit effects begin to work as transition to a market economy progresses. However, initial productivity improvements are due to changes to market shares of the existing firms following the break-up of large enterprises. Regression analysis shows that changes in the firm-level productivity are affected by restructuring and a more competitive economic environment.

Introduction

Central to the whole purpose of transition from a state-owned, planned economy to a privately owned, market economy is the expectation that a principal constraint on productivity growth is removed as resources are freed to flow to their most valuable use. The processes of enterprise birth and death, growth and contraction become entrepreneurial responses to perceived demands rather than by-products of a political system. While the experience of transition in most of the transition economies of Central and Eastern Europe has been generally supportive of this proposition, it is also apparent that transition is a complex phenomenon in which industrial performance depends on many factors including financial infrastructure, security of property rights, international openness etc. [ [START_REF] Piatkowski | The 'New Economy' and Economic Growth in Transition Economies: The of Institutional Infrastructure[END_REF]]. Therefore developing an understanding the phenomenon of transition involves evaluating many aspects of change. Moreover, the productive impact of these is likely to vary across economies and over time. For example, policies that liberalise competition and thus stimulate major shifts in market shares between firms may have quite different outcomes to policies that deregulate entry and thereby encourage new enterprise. This paper explores the impact of firm turnover and restructuring on aggregate productivity during transition to a market economy. It uses the early transition experience of the stock of Polish firms to quantify and compare the productivity impact of new firm creation, old firm exit and the expansion/contraction of successful/unsuccessful firms in the evolving economy. Poland constitutes a good case study for investigating channels of productivity change. After an initial fall in output, in common with all transition economies, Poland was the first one to recover. This recovery has been closely linked with the entry and expansion of new firms [START_REF] Ebrd | Transition report 1999: Ten years of transition[END_REF], developments facilitated by new legislation reducing formal barriers to entry. Additionally, a relatively large non-agricultural private sector that existed before transition formed a good basis for consolidation of small and medium-sized enterprises (OECD, 1992) and a source of entrepreneurial skills. Recent large-sample empirical work on the processes of entry, exit and growth in developed economies has tended to advance a neo-Schumpeterian view of firm turnover. Manufacturing industries typically exhibit substantial heterogeneity among their constituent firms (see [START_REF] Bartelsman | Understanding Productivity: Lessons from Longitudinal Microdata[END_REF] for a survey) and the variability of measured productivity across these is surprisingly great. However, high levels of firm turnover result in greater exit among less productive firms, many of which are of recent origin. Their replacements typically benefit from up-to-date capital equipment although they might not yet manifest the productivity gains resulting from managerial experience and learning-by-doing [START_REF] Jensen | The Impact of Vintage and Survival on Productivity[END_REF]. On the whole, turbulence within the capitalist economies appears to raise productivity.

Thus the replacement of less productive firms by new entrants of at least average productivity, the mobility of market share from less productive to more productive firms and the potential for productivity growth among those newcomers that survive may together exert a significant upward push on overall industrial performance.

Indeed, establishment-level work [e.g. [START_REF] Disney | Restructuring and Productivity Growth in UK Manufacturing[END_REF]] suggests further gains from intra-firm turbulence, as production is relocated to more productive establishments within multi-plant firms.

Outside the developed capitalist economies this picture is less clear. In some studies of developing economies (see [START_REF] Tybout | Manufacturing Firms in Developing Countries: How Well Do They Do and Why[END_REF] for a survey) new entrants are typically less efficient than their industry mean. However, the cohort of such entrants, or more specifically the survivors therein, typically exhibit higher-than-average post-entry productivity growth. Thus [START_REF] Aw | Firm-level Evidence on Productivity Differentials and Turnover in Taiwanese Manufacturing[END_REF] report that the productivity differential between exiting firms and surviving entrants in Taiwanese manufacturing is an important source of productivity growth. The evidence for selected industrial and developing countries 1 is brought together by [START_REF] Bartelsman | Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries[END_REF], with the conclusion that there are large differences in how creative destruction works in different groups of countries.

The extent and variety of industrial turbulence involved in a change of economic system makes the transition economies of Eastern Europe an unusual special case First, the economic dislocation accompanying transition clearly exceeded that 1 The dataset, corresponding to a 2-digit level of industrial classification, includes OECD countries, emerging economies of Latin America and East Asia and several transition economies (Estonia, Latvia, Hungary, Romania and Slovenia). potentially adverse consequences for enterprise development, at least in the short-run [START_REF] Carlin | Understanding The Essential Fact About Capitalism: Markets, Competition and Creative Destruction[END_REF]. Second, high rates of de novo entry occurred, often on a very small scale, because of under-developed capital markets. And third, while the circumstances of transition clearly generated opportunities for new firms, they also resulted in restructuring of existing enterprises on an unprecedented scale. This involved not merely the transfer into private ownership of existing state-owned activities, but the break-up of large numbers of such enterprises. This process is not adequately documented in the official statistics 2 , so that increased turnover to some extent reflects the fragmentation of some multi-plant state enterprises. [START_REF] Lizal | Enterprise Breakups and Performance during the Transition from Plan to Market[END_REF] consider the break-up of large state-owned enterprises to be among the most important changes accompanying transition.

In western economies changes in asset ownership, brought about by mergers, divestments and spinoffs, offer the opportunity to restructure enterprises and improve efficiency. While by no means do all such transactions turn out to be successful, on average they appear to raise productivity [START_REF] Seabright | Ten Years of European Merger Control, Beesley Lectures on Regulation, IEA[END_REF]]. Particular gains appear to follow the divestment of assets to management buyouts and to third parties holding complementary resources 3 . The evidence from transitional economies suggests a positive role for divestment. [START_REF] Lizal | Enterprise Breakups and Performance during the Transition from Plan to Market[END_REF] examine break-ups of Czechoslovak state-owned enterprises in 1991 and find a significant positive effect on productive efficiency and profitability for both the divesting parent and the spinoff, although the percentage gains are sensitive to the relative size of the two parties. Similarly, [START_REF] Hanousek | Spinoffs, Privatisation and Corporate Performance in Emerging Markets[END_REF] confirm a positive performance effect for spinoffs, a result they attribute to the elimination of inefficiencies resulting from diseconomies of scale, weak managerial incentives, and a lack of focus on core competencies. Both studies use relatively small sample divested activities and each acknowledges the possibility of systemic losses elsewhere, but they point to potentially large gains resulting from a reversal of the large-scale enterprise policy that was necessary to facilitate central planning.

2 This is not restricted to Poland and centrally collected statistics from other transition countries suffer from the same limitations (see e.g. [START_REF] Halpern | Efficiency and market share in the Hungarian corporate sector[END_REF] for Hungary). In order to explore the impact of turnover and restructuring on the aggregate productivity, we apply a series of productivity decompositions to what is effectively the population of Polish manufacturing firms before and during early transition (1988)(1989)(1990)(1991)(1992)(1993). Aggregate productivity changes analysed in the paper are decomposed into elements corresponding to productivity growth among survivors, market share growth by survivors and the contributions of entering and exiting firms. As entry, exit and market share adjustments affect productivity indirectly, by increasing market contestability and placing the competitive pressures on survivors, we also analyse the impact of the changing economic environment on the productivity of incumbents. The results are complex, as might be expected given the extent of turbulence in the Polish economy of the time. They point to the initial importance of the market share effect, as resources flowed from less efficient to more efficient enterprises and the subsequent importance of entry and exit, partly reflecting the break-up of traditional enterprises and the creation of new ones from their assets.

The paper is organised as follows: Section 2 describes the database and presents a preliminary analysis of the productivity characteristics of entrants and exits over the transition period. In section 3 we present some decompositions of aggregate productivity to try to determine the relative importance of intrinsic productivity growth, the transfer of market share to more productive units and the impact of entry.

Section 4 explores the impact of firm and industry characteristics on firm-level productivity change in the early 1990s. A brief conclusion follows.

Data and Preliminary Characteristics

The Polish Central Statistical Office (GUS) maintains the register of all firms and collects detailed questionnaires covering various aspects of firms' performance. The design of different questionnaires and the requirement to report changed over the years. Initially it was mostly state-owned enterprises filling in monthly questionnaires. Later on all firms complying with double-entry accounting rules were obliged to submit their reports on a monthly or annual basis, depending on their size.

The GUS processes the reports and publishes the resulting aggregates in the statistical yearbook and other more specialised publications. Our dataset is compiled from the questionnaires on financial results (F-01) initially submitted mostly by the state-owned enterprises but later on routinely collected from all firms employing 5 or more workers, independent of their ownership status. Table 1 gives the information about the number of manufacturing firms registered and their aggregate sales, as reported in the statistical yearbook, in comparison to our dataset.

The period covered is 1988 to 1993, from just before the transition started, into the first years of transition. The dataset covers around 2% of the firms registered but this count includes the corporate sector as well as self-employed. The coverage is very high in terms of sales, with the aggregate output of the firms in our database accounting for around 90% of total sales in Polish manufacturing. Measuring productivity is essential to our analysis. [START_REF] Disney | Restructuring and Productivity Growth in UK Manufacturing[END_REF] note that the choice between total factor productivity (TFP) and labour productivity as the preferred measure of firm performance usually involves a trade-off: TFP contains more information but is typically subject to greater measurement error via the capital input variable. For transition economies, the belief that book value of fixed assets is inaccurate leads to problems with the use of TFP. Apart from concern about the reliability of the TFP-based estimates, labour productivity is considered a preferred measure of productivity in the early stages of enterprise restructuring as it captures better short-term adjustments such as labour shedding, in contrast to longer term modernisation of capital stock [START_REF] Djankov | The restructuring of large firms in the Slovak Republic[END_REF]. Accordingly, this paper uses labour productivity, rather than TFP. In support of this, we note that many other productivity studies, including [START_REF] Graham | Productivity growth in British manufacturing: Spatial variation in the role of scale economies, technological growth and industrial structure[END_REF] and [START_REF] Disney | Restructuring and Productivity Growth in UK Manufacturing[END_REF], report that labour productivity and TFP typically generate very similar results. Table 2 shows the behaviour of labour productivity, defined as the log of real output4 per worker, across all Polish manufacturing industry over the transition period. It is immediately apparent that productivity fell sharply in the immediate aftermath of transition. This is to be expected in that Poland, although to a lesser extent than some other former Communist countries, experienced an immediate contraction in output with subsequent labour adjustment. After 1991 there was a rapid increase in productivity, although the high associated standard deviation points to a considerable dispersion in outcomes.

Decomposition of productivity growth

From our analysis of Tables 23, it is clear that the beginning of transition has to be seen as a period of increased turnover and improved productivity. We now set out to investigate the links between these two. However, the overall turbulence makes it difficult to disentangle the relative contribution of turnover and restructuring, since the impact on average productivity may be transmitted through individual firm effects as well as market share changes. In the next part of this paper we attempt a decomposition exercise to isolate these effects. The productivity literature exhibits several alternative decomposition procedures. We follow [START_REF] Disney | Restructuring and Productivity Growth in UK Manufacturing[END_REF] in using three of these as a check for robustness.

For the decomposition analysis we define aggregate productivity in year t:

it i it t p s P =
where s it is the share of firm i in year t and p it is productivity.

To determine the effects for S (survivors), N (entrants), X (exits) we use the decomposition proposed by [START_REF] Baily | Productivity Dynamics in Manufacturing Plants[END_REF]

[henceforth BHC],
where the change in average productivity between t-k and t is given by:

+ + = X i k it k it N i it it it it S i it S i k it t p s p s p s p s P (BHC)
where the first term = the "within" effect, shows the contribution to productivity growth of the survivors;

the second term = the "between" effect, shows the contribution of changes in shares for the survivors weighted by final period productivity;

and the third and fourth terms = the net entry effect, represent the contribution of entering and exiting firms.

The external effect captured by the last two terms in the BHC decomposition has been the subject of criticism. In particular, replacing less efficient exits with more efficient entrants could produce an unsatisfactory negative effect if the market shares of the entrants were sufficiently small and those of the exits sufficiently high. For this reason, Foster, Haltiwanger and Krizan (1998) [henceforth FHK] propose decomposition relative to average productivity:

( ) ( ) ( ) + + + = X i k t k it k it N i k t it it it S i it k t k it it S i it S i k it t P p s P p s p s P p s p s P (FHK)
The first term remains the same but the second term shows the positive betweensurvivors effect only if market shares increase for the survivors with above average base year productivity. The new cross effect in the third term is positive when market shares increase (fall) for the firms with growing (falling) productivity. The net entry effect is now comprised of entry and exit elements that are unambiguously positive (negative) if entrants' (exits') productivity is greater than (less than) the mean. FHK concede, however, that their approach is highly sensitive to measurement error in assessing market shares and relative productivity levels in the base year. [START_REF] Griliches | Productivity and Firm Turnover in Israeli Industry[END_REF] [henceforth GR] suggest an alternative formulation with time-averaging procedure to reduce measurement error:

( ) ( ) ( ) + + = X i i k it k it N i i it it i i it S i it S i i t P p s P p s P p s p s P (GR)
where the bar indicates a time average over the base year (t-k) and the end year (t).

We examine productivity between 1991 and 1993 as substantial improvements were experienced over this period. Before decomposing productivity change and apportioning it among different types of firms, in Table 4 we look at the characteristics of entrants, exits and survivors. In 1992 there is a large number of very small entrants, around one third of the average size for that year. There are relatively few exits but, as they are very large, they account for a relatively large amount of total manufacturing output. In 1993 there are far fewer entrants but their average relative size more than doubles. At the same time, the number of exits increases dramatically,

with exiting firms becoming much smaller than the average. There are productivity differentials between entrants and exits, with exits exhibiting surprisingly high productivity, exceeding that of survivors. Productivity among the survivors increases and is above the end year average. The relative size and productivity of exits in 1992 and the characteristics of new entrants appear consistent with a certain amount of restructuring through the break-up of large firms.

In both periods productivity increases, but there might be different processes behind productivity improvement. Table 5 gives components of productivity change using the decomposition methods outlined at the beginning of this section. The BHC decomposition gives very large individual contributions. Similar results are obtained by [START_REF] Baily | Productivity Dynamics in Manufacturing Plants[END_REF] in their original application, where large individual effects are offset by a negative effect so that all contributions add up to 100%.

Productivity growth among survivors can come from improvements in their individual productivity and from changes in output shares. Even though average productivity and size among survivors increase (as Table 4 indicates), the within effect is negative, as some firms with large output share, presumably state-owned, experience a decline in productivity. This decline might be the result of labour hoarding, where firms are reluctant to reduce workforce despite output contraction. This explanation is supported by [START_REF] Christev | Employment and wage adjustment: Insideroutsider control in a Polish privatisation panel study[END_REF] who find evidence of initial widespread In 1992 there is a strong "between" effect accounting for 97% of total growth. This effect is determined by the change in the shares of survivors weighted by their final year productivity. A large positive effect indicates that firms experiencing large share increases were also characterised by high productivity. On the other hand the between effect for 1992-93 is very large and negative. In this period the average size of a survivor went down and the majority of firms experienced a decline in their shares.

We take it as a sign of deconcentration and diminishing importance of large firms in the presence of substantial entry. This interpretation is confirmed by a large positive net entry effect on productivity growth 6 in 1992-93. The strong net entry effect is partly due to a large share of entrants, compared with the share of exits (see Table 4), not just a result of the underlying productivity differentials. Indeed, the BHC decomposition is often criticised on the grounds that the interpretation of relative contributions of entry and exit is unclear.

The FHK decomposition is considered superior to the BHC one because of the ease of interpretation of the individual effects. In 1991-92 the between survivor effect (=51%) is positive as the firms with above average productivity experience market share increases. However, growth in productivity is mostly explained by the cross effect (=89%) indicating that market shares increased for the firms with growing productivity. The effect of net entry was small and negative (-13%). This was due to the contribution of exits with relatively high productivity and large share. In the period of 1992-93 changing productivity is mostly explained by the net entry effect.

The large positive effect (= 63%) is driven by the entrants with high productivity relative to the average. This effect might capture the entrance of de novo firms, which exhibit performance superior to that of state-owned or newly privatised firms [START_REF] Konings | Firm Growth and Ownership in Transition Countries[END_REF]. The GR decomposition gives us the estimates of the net entry effects fairly consistent with the FHK estimates (-14% for 1991-92 and 57% for 1992-93).

5 See [START_REF] Carlin | Restructuring outcomes and the evolution of ownership patterns in Central and Eastern Europe[END_REF] for a summary of restructuring outcomes in different countries. 6 This is consistent with [START_REF] Yamar | Plant-level Dynamics and Aggregate Productivity Growth in the Turkish Meat-Processing Industry: Evidence from Longitudinal Data[END_REF], where negative between effects are always accompanied by strong entry/exit effects.

F o r P e e r R e v i e w [START_REF] Bartelsman | Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries[END_REF] identify the within-firm performance as a major factor behind productivity growth in industrial and emerging economies. The effect of reallocation of resources among existing firms, due to changing market shares, varies across countries. The net contribution of entry and exit is generally positive and in transition economies examined by [START_REF] Bartelsman | Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries[END_REF] the entry of new firms often makes a strong contribution to productivity.

In contrast to these regularities, the results for Poland at the beginning of transition display a different pattern. Initially, the within effect is negative, indicating that productivity among the existing firms actually declines. The net entry effect (FHK and GR decompositions) is negative in 1991-92, which does not support the creative destruction hypothesis. There are positive and strong between-and cross-effects though, as market shares grow (decline) for the firms with the productivity above (below) the average. This gives indirect support to the importance of the Schumpeterian forces, in this case acting through market share adjustments rather than entry and exit as such. In the second period (1992-93), net entry is the main factor behind productivity improvements. A relatively strong within effect (between 32 and 44%) means that productivity improvements can also be attributed to the existing firms, as long as their contributions are weighted by their initial output shares. Changes to the market share continue to be an important factor, as shown by a large negative between effect.

Each subperiod displays a different pattern in the sense that not only the size but also the sign of different effects changes. This is not unusual and YaMar et al ( 2004) in their analysis of selected Turkish industries obtain different results for different subperiods.

Their results do not always follow the empirical regularities observed for developed countries, which they attribute to weak institutional and market structures preventing Schumpeter's creative destruction from working. Similarly, we find that entry and exit effects can work only after some restructuring has taken place.

Instead of a distinction between incumbents, entrants and exits, and their respective contributions to aggregate productivity, [START_REF] Disney | Restructuring and Productivity Growth in UK Manufacturing[END_REF] contrast internal and external restructuring. The former is measured by the "within" effect, while the remaining effects are an indication of external restructuring. The process involves market selection whereby low productivity firms exit and are replaced by higher productivity entrants, alongside higher productivity incumbents gaining market share.

For the UK in the 1980s and early 1990s, internal restructuring accounted for around 50% of labour productivity growth and external restructuring was the main factor behind productivity growth in terms of total factor productivity. For Poland at the beginning of transition internal restructuring accounts for at most 44% of productivity growth (GR decomposition for 1992-93), while the bulk of productivity growth is explained by external restructuring. This takes the form of some firms leaving and new firms entering although changes in market shares of the survivors exert very strong influence on overall productivity. Behind these processes there is genuine turnover but the characteristics of exits and entrants suggest an amount of restructuring by the break-up of large firms. Instead of contrasting internal and external restructuring, [START_REF] Bartelsman | Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries[END_REF] promote the view that these processes are closely related and could be interpreted as contestability effects, whereby greater competitive pressures may induce incumbents to perform more efficiently. For this reason, in the following section we examine the environmental determinants of productivity changes in the immediate post-transition period.

Determinants of productivity change

There have been numerous models in the theoretical literature [see [START_REF] Nickell | The Performance of Companies[END_REF] for a survey] that have considered the impact of competition on the manager-agent's incentive to exert effort on behalf of shareholder-principals. Most, although by no means all, of these have concluded that market share and concentration, certainly at high levels, offer managers some cushion and opportunity to reduce effort. Empirical work, using developed country data [e.g. [START_REF] Nickell | Competition and Corporate Performance[END_REF], and [START_REF] Bottasso | Market Power, Productivity and the EU Market Program: Evidence from a Panel of Italian Firms[END_REF]] has generally supported this. The picture may be different in developing countries [see [START_REF] Tybout | Manufacturing Firms in Developing Countries: How Well Do They Do and Why[END_REF]] where, typically, many plants can be beneath the minimum efficient scale in less concentrated industries. However, in transition economies, where the prior absence of competition was widely believed to have harmed productivity [START_REF] Porter | The Competitive Advantage of Nations[END_REF]], there is the added potential effect of the initial It is acknowledged in the literature [see [START_REF] Nickell | Competition and Corporate Performance[END_REF]] that market competition is difficult to measure in an empirical study. Conventional measures of market structure, such as the HHI, are flawed insofar as intrinsic industry differences in R&D-and advertising intensity have been shown to place bounds on market concentration [see [START_REF] Sutton | Technology and Market Structure[END_REF]]. However, [START_REF] Disney | Restructuring and Productivity Growth in UK Manufacturing[END_REF] argue that changes in market structure will typically act as indicators of competitive pressure. We also follow these authors and [START_REF] Nickell | Competition and Corporate Performance[END_REF] in using ex ante rents as an indicator of the inverse of the competitive pressure being experienced by managers and workers. Therefore we expect that increases in concentration and leading firm market share will signal less competitive pressure and generate lower productivity gains. Similarly, we anticipate that the incentive to improve productivity will be reduced among firms already earning high rents.

In transition economies there are likely to be additional incentive effects associated with the privatisation and the restructuring of industry. In particular, we might expect managers of newly-privatised enterprises to face much stronger incentives to reduce costs than did their predecessors in state-owned firms. In the first place, privatisation introduces the sanction of bankruptcy for failing firms. In Poland this was accompanied by hard budget constraints, tight bank lending policies and a credible policy of no state bail-outs [START_REF] Pinto | Transforming State Enterprises in Poland: Evidence on Adjustment by Manufacturing Firms[END_REF]]. Secondly, post-privatisation managers may well have a direct equity involvement, particularly where the privatisation was effected by a management buy-out, as was frequently the case in Poland [START_REF] Filatochev | Buy-outs in Hungary, Poland and Russia: Governance and Firm Exits[END_REF]]. Even where this did not occur, it appears plausible that the senior managers' remuneration will be more closely tied to performance than that of their predecessors. Finally, in as much as restructuring in transition economies generally involved the breaking up of multi-product, multi-plant enterprises into smaller units, it may have affected incentives by establishing a more transparent connection between managerial effort and firm performance. As indicated throughout this paper, privatisation and associated restructuring were ubiquitous features of the Polish economy over the period. The database allows us to control for state ownership and identify those firms that moved out of the state sector in 1989-91 and retained their firm identifier. In some cases this probably amounted to no more than a reclassification of co-operative enterprises to the private category.

Nonetheless it probably serves to distinguish such enterprises from the regular stateowned ones. Of course, elsewhere privatisation will have involved both breaking up and reclassifying firms. Among other firm-level characteristics, we also make a distinction between the older firms, which existed before transition, and the new firms which entered in or after 1990. Firm size, measured by the log of employment, was included to capture any greater potential to realise size-related productivity growth.

We also control for the environment within which firms operate, in particular, the size of the state-owned sector and the existence of any foreign firms within industry. It is difficult to make an a priori assessment of the likely impact of the continuing presence of state enterprises on productivity growth across firms in the industry. State firms themselves may possess low incentives to effect productivity growth, but their very inertia could generate opportunities for private innovation. We control for the share of the state-owned firms in the 3-digit industry with no strong prior. There is a clear association between foreign direct investment, technology transfer and productivity growth (see [START_REF] Tybout | Manufacturing Firms in Developing Countries: How Well Do They Do and Why[END_REF], although whether this extends, via spillovers, to domestic rivals of foreign-owned plants is the subject of some debate. We include an indicator variable to denote the presence of foreign MNEs in the industry, with the expectation that technology transfer effects and/or spillovers will generate a positive coefficient. Finally, in recognition that the model will inevitably omit some specific entry barriers, we include realised entry, measured as the log of the number of entrants (+1) to the industry over the period.

Productivity regressions are run for a pool of all firms surviving throughout the period 1990-1993 (results in column 1 in The results indicate mixed support for the effects of competitive pressure. The change in concentration carried the expected significant negative sign, with an additional strong negative effect for the change in market share in high concentration industries.

Similarly, productivity growth was significantly lower in industries characterised by high existing rents. However, the change in market share alone carried a significant positive effect. It was unclear whether this was picking up a firm size effect or reflected some kind of Chicago mechanism -see [START_REF] Demsetz | Industry Structure, Market Rivalry and Public Policy[END_REF] -in which firms displaying superior productivity performance expand relative to their rivals. The inclusion of an entry variable, intended to capture another dimension of competitive pressure, proved insignificant; perhaps because any competitive stimulus to productivity growth was offset by the dilution effect of small, sub-optimal scale entrants in some industries. This conjecture is reinforced by the very large positive coefficient attaching to size.

The importance of ownership was demonstrated in two ways: First, the Ownership Change binary variable carried a large positive coefficient. Second, when this variable was replaced by a State Ownership binary variable 7 , the latter carried a large negative coefficient. While there may be some selection bias, in that those enterprises with the best prospects may have been privatised earlier in transition, the results are strongly consistent with a large privatisation effect. However, we find no comparable effect when state ownership is measured at the industry level. The industry's proportion of state-owned enterprises attracted a negative but insignificant coefficient. By contrast, industries with foreign-owned enterprises exhibited significantly higher productivity growth, a result consistent with the expected advantages of multinationals in both technology transfer and experience of the market economy.

The performance of the new entrant cohort dummies suggested that new entrants enjoyed significantly higher productivity growth than those survivors from the start of the period. However, the entry variable, that represented the (log of) number of 7 State ownership is only included for 1992-1993 but not for 1990-1993. The reason is that in 1990 the majority of firms in our database was state-owned. Similarly Ownership Change is only included in 1990-1993 because the ownership changes we trace are limited to the initial period of transition. entering firms, was negative and indeed significant for the 1992-93 period. Since this variable was intended to capture competitive pressure, through the ease of entry, this result appears surprising, especially given the previously reported positive productivity effect enjoyed by entrants. However, there is a very substantial variation in the number of new entrants across industries and it may be that it reflects differences in underlying technology that also correlate with the potential for productivity growth. The low overall fit of our regressions is unsurprising given the enormous heterogeneity among the population of Polish firms in the immediate aftermath of transition.

F

  macroeconomic downturns in mature economies, with

  3 See[START_REF] Haynes | The impact of Divestment on Firm Performance: Empirical Evidence from a Panel of UK Companies[END_REF] and references therein.

  Polish firms. The between effect becomes positive in the second period, confirming prevailing productivity improvements among survivors, as all types of firms engage in reactive restructuring involving employment adjustments 5 .

  . Indeed,[START_REF] Aghion | Competition, Innovation and Growth in Transition: Exploring the Interaction between Policies[END_REF] survey firms in 25 transitional economies and find that competitive pressure enhances the performance of new as well as old firms.

  a first attempt to evaluate the alternative sources of aggregate productivity change in a transition economy experiencing the full throws of change. In particular, the beginning of transition is characterised by restructuring of existing enterprises and increased turnover. We employ a comprehensive database, covering almost all medium and large Polish manufacturing firms existing in the period to evaluate changes to aggregate productivity. The decomposition analysis points to a strong role of external restructuring, involving entry, exit as well as market share adjustment effects. Initially, changes to market shares of the existing firms following the break-up are the main factor behind productivity improvements. Later on, the traditional entry and exit effects are at work, supporting the notion of creative destruction.The importance of external restructuring goes beyond its accounting contribution to aggregate productivity growth. Increased contestability and competition may affect the productivity of incumbents. We investigate this by examining how the new economic environment influenced the incumbents' productivity. The results give some support for the effects of competitive pressure and organisational change.

Table 1

 1 Officially published aggregates and the dataset

		1988	1989	1990	1991	1992	1993
	Aggregate official statistics:
	Firms registered	237844	297983	346299	340400	356000	307850
	Sold output (milliard zloty, current prices)	32695.4	102729.5	577292.6	758877.8	983786.6	1384680.5
	Dataset:
	Firms registered	4654	4654	5183	6381	11062	11498
	as % of all	1.96%	1.56%	1.50%	1.87%	3.11%	3.73%
	Sold output (milliard zloty, current prices)	31231.0	87578.0	491153.9	630551.0	946034.0	1255195.2
	as % of all	95.52%	85.25%	85.08%	83.09%	96.16%	90.65%

Table 2 Average productivity across all manufacturing industries 1988-93

 2

		Mean	Std.dev.
	1988	1.6548	0.6903
	1989	1.6963	0.6782
	1990	1.5861	0.7673
	1991	1.5850	0.8422
	1992	1.7888	1.1176
	1993	1.9293	1.1454
	Poland, more than most transition economies, experienced an upsurge in entry in the
	years immediately following transition. It can be seen in Table 3 that the
	characteristics of new entrants as well as exiters change with transition. The average
	number of entrants per year per industry rose from under two, in 1988-89, to almost
	32 in 1991-92. However, it will also be seen that most of these entrants were
	relatively small. The result was that in spite of the extraordinary rate of entry, new
	entrants collectively enjoyed a fairly small market share. In contrast to this, exiters
	were relatively large, suggesting to the amount of restructuring concealed behind exit
	and entry activity. Some of the apparently new firms were actually new entities
	created via privatisation and restructuring of the old firms. Therefore their capital

Table 3 Entry and exit in Polish manufacturing, 1988-1993; descriptive statistics (averaged across 152 industries)

 3

		1988-89	1989-90	1990-91	1991-92	1992-93
	Number of entrants	1.81	4.26	10.88	31.94	18.18
	per industry
	Entry rate	0.24	0.22	0.46	0.99	0.23
	Average size of	0.0517	0.0286	0.0188	0.0093	0.0086
	entrant (relative to
	the industry sales)
	Overall market	0.0919	0.1028	0.1988	0.2663	0.1236
	share of entrants
	Number of exits per	2.42	0.72	2.16	2.93	15.82
	industry
	Exit rate	0.11	0.04	0.09	0.09	0.21
	Average size of exit	0.0290	0.0476	0.0466	0.0338	0.0072
	(relative to the
	industry sales)
	Overall market	0.0548	0.0331	0.0881	0.0991	0.0928
	share of exiters
	Source: Roberts and Thomson (2003)

Table 4 Output share, size and relative productivity of entrants, exits and survivors

 4

	Total numbers	Size relative to average
	Entrants, t Exits, t-1 Entrants, t Exits, t-1 Survivors,	Survivors,
		t-1	t

Table 6

 6

	) and for the firms existing in 1992 and

Table 6 Changes in productivity for the surviving firms

 6

				Change in productivity
			Firms surviving between	Firms surviving between
			1990-1993	1992 and 1993
	Constant		-0.5890	-0.5347
			(-9.87)	(-8.23)
	Change in market share	7. 8810	9.4064
			(16.2)	(10.51)
	Change in market share	-6.2124	-7.5662
	* high concentration	(-10.81)	(-6.89)
	Change in concentration	-0.7400	-0.2241
	(HHI) High rents	(-3.96) -0.0443 r o (-3.57)	(-0.65) -0.1610 (-8.07)
	If entered in 1990 If entered in 1992 If ownership change	0.1481 P (8.24) e e 0.1144 r (7.48)	0.3895 (17.98)
	If state-owned Size (log of employment) Size of state-owned sector -0.0273 0.1079 (17.89) (-0.82) If any foreign firms in industry 0.0438 (2.69) Entry -0.0033	-0.2567 (-9.99) 0.1641 (21.16) -0.0628 i e R v (-1.07) e 0.0763 (1.99) w -0.0292
			(-0.54)	(-2.95)
	N		3 * 3104 = 9312	8257
	R-bar squared		0.072	0.0911
	Note: Regression in column 1 also included year dummies
	t-values in parentheses
				20

Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript

Deflators used are price indices of sold output, available for 3-digit industries from the Polish Statistical Yearbook (various issues).

Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript