the number of competitors. In case of a negative shock, in the short term the number of competitors stays the same while demand drops, and the latter may be perceived as more elastic demand. This explanation is supported by two findings from the data. First, firm- reported capacity utilization (which is highly correlated with the business cycle) is correlated with firm-reported elasticity of demand, whereas there is no evidence of correlation between the number of competitors and capacity utilization. Second, patterns at the country level suggest a relationship between macro performance and changes in the elasticity of demand. Uzbekistan', for example, has grown relatively slowly in recent years and is a country where demand has been becoming more elastic. On the other hand, in countries that grew reasonably fast, the reported elasticity has been falling (e.g., Russia, Ukraine). Thus, although market structure as measured by the number of competitors has become more competitive over the 1999-2005 period in transition economies, the substantial macro recovery in the region may be responsible for the reported falls in elasticity of demand faced by firms.
We turn now to firms’ assessments of the “importance” of competition. This is approached in several ways in the BEEPS survey. Firms are asked about the importance of competition from imports in the market for their main product or service. Separately, they are asked about the importance of pressure from customers and from foreign and domestic competitors for developing new products, services or markets, and for reducing production costs. These latter measures are particularly relevant for this paper, since they measure the competitive pressures to engage in restructuring.
Table IV.3 shows a now familiar pattern: the perceived level of competition from imports in transition countries (III-V) in 2002 and 2005 differs little from that in the developed EU market economies (I-II). A closer look at country groups suggests that variations across regions are driven primarily by country size, i.e., the size of the domestic market and the scale of domestic competition. Thus in 2005, 11-14% of firms in the cohesion countries (II), the EU8 members (III), the SEE countries (IVa), and the low income CIS countries (V) stated that competition from imports was high, whereas the figures for West Germany (I) and the middle-income CIS countries – most of which are Russian firms –