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asked separately about domestic and foreign markets). The 2004 and 2005 BEEPS surveys asked a retrospective question about levels of competition faced three years earlier. The responses suggest, if anything, a further catching-up of the TEs to levels of competition seen in the pre-2001 EU: of the firms that faced moderate competition in 2002 (1-3 competitors), 34% in TEs stated they faced strong competition (4+ competitors) in 2005, vs. 22% in the pre-2001 EU; and of the firms that faced strong competition in 2002, 18% in TEs said they faced less competition in 2005, vs. 15% in the pre-2001 EU.

A closer look at variation across country regions shows that firms generally reported an intensification of competition across all transition country regions between 2002 and 2005. The least competitive environment is reported by firms in the low-income CIS countries (V), whereas the most competitive environment is in the cohesion countries (II) and the EU8 members (III). The fastest change in the market structure (towards more competition) is observed in the middle-income CIS countries (IVb) followed by the SEE countries (IVa) and low-income CIS countries (V). The interpretation of this result is straightforward: (new) firms are filling in niches in markets characterized by low competition. The data also show that the EU8 member states are fairly close to the cohesion countries in terms of market structure and market structure change.

The price elasticity of demand data show a somewhat different picture (Table IV.2). Over the entire 1999-2005 period, the overall degree of price elasticity is similar to what is seen in the pre-2001 EU countries. However, the share of firms in TEs reporting inelastic demand grew between 1999 and 2005, and the share of firms facing highly elastic demand shrank. The picture is therefore somewhat different from the degree of competition results: firms in TEs in 1999 faced elasticities of demand that were slightly higher than in the market economy benchmark (EU pre-2001), and in 2005 faced elasticities that were slightly lower than the benchmark.

A possible explanation for this is that responses to questions about elasticity of demand are affected by the business cycle and business environment much more than estimates of


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