Manufacturing Profitability, Monopoly Power and Efficiency in a Small Open Economy: Implications on Competition Policies

The past studies which identified a positive association between concentration (an indicator of market power) and proï¬ tability supported the view that the level and changes in industry concentration is an important guide to the formulation oj anti-trust policies. Most of these studies were conducted for large industrial countries such as the U.S and U.K. The present study considers this view in the context of a small open economy. The majority of ï¬ rms in these economies are typically characterised by sub-optimal scale of production. Generally, the results conï¬ rm the previous ï¬ ndings and support well~established hypothesises. However, the paper argues that the other determinants of proï¬ tability such as efliciency, entry barriers and international influences are important as much as concentration in determining such policies. The analysis is carried out on a sample of I09 New Zealand manufacturing industries.