Does Market Structure Matter? Evidence from the Indian Cement Industry
Studies in Business and Economics no. 9(3)/2014: 107-124.
18 Pages Posted: 2 May 2015
Date Written: December 31, 2014
The main objective of this paper is to answer the question; does the market structure explain the variation in profitability of Indian cement industry? If yes, which measure; if no, why not? To answer this question, we used the empirical technique, the Davidson-MacKinnon’s J test, to test the non-nested hypotheses to choose among the three competing measures of the market structure, CR4, HHI, and CV of market share. We found that none of the measures of market structure are able to explain the variation in profitability of the Indian cement industry. In other words, neither concentration (measured in terms of CR4 and HHI) nor efficiency of the firms (measured in terms of CV of market share) is able to explain the variation in profitability. This result is in line with our expectation since, unlike industry profitability, none of the measures of market structure changed significantly during the sample period. Since Competition Commission of India in June 2012 found 11 cement companies indulging in a price cartel, it is clear from the findings that market structure alone cannot explain the behavior of firms in certain market such as cement industry in India. To detect cartel in such market, more detailed examination is required both at industry as well as firm level.
Keywords: Cement industry, Market Structure, Profitability, India
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