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Measuring market imperfection in the manufacturing sector: Theory and evidence from India

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  • Sandwip Kumar Das
  • Manoj Pant

Abstract

In this paper we have looked at the structure of competition in the Indian corporate sector during 1989�-�2003 and found that the new industrial policy has not been able to foster greater competitiveness in organized industries. In spite of an increase of in the number of firms, the industry has not become more competitive in terms of the difference between price and marginal cost. The firms that have entered are small players in the market and no significant entry of middle-sized firms has taken place. In order to deal with the 'missing middle' aspect of industrial concentration in India, we have used a leadership model to estimate the mark-ups for groups of small and large firms. The theoretical model suggests that sample classification is necessary in order avoid bias in mark-up estimates. The sub-game perfect equilibrium in the leadership model also suggests that the mark-up of small firms is different from that of the large firms and possibly higher under certain conditions, which is partly supported by the econometric finding in the Indian context.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 15 (2006)
Issue (Month): 1 ()
Pages: 63-79

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Handle: RePEc:taf:jitecd:v:15:y:2006:i:1:p:63-79

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Related research

Keywords: Lerner index; sub-game perfection; Indian corporate sector; size distribution of firms;

References

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  1. Pant, Manoj & Pattanayak, Manoranjan, 2005. "Does Openness Promote Competition? A Case Study of Indian Manufacturing," MPRA Paper 2871, University Library of Munich, Germany.
  2. Pravin Krishna & Devashish Mitra, . "Trade Liberalization, Market Discipline and Productivity Growth: New Evidence From India," Working Papers 96-8, Brown University, Department of Economics.
  3. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," NBER Working Papers 2115, National Bureau of Economic Research, Inc.
  4. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
  5. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  6. Bandyopadhyay, Arindam & Das, Sandwip Kumar, 2005. "The linkage between the firm's financing decisions and real market performance: A panel study of Indian corporate sector," Journal of Economics and Business, Elsevier, vol. 57(4), pages 288-316.
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Cited by:
  1. Manoranjan Pattanayak Author- Workplace-Name: CRISIL LIMITED & Manoj Pant, . "Corporate Governance, Competition and Firm Performance: Evidence from India," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 10-07, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
  2. Alokesh Barua & Debashis Chakraborty & Hariprasad CG, 2012. "Entry, Competitiveness and Exports: Evidence from the Indian Firm Data," Journal of Industry, Competition and Trade, Springer, vol. 12(3), pages 325-347, September.
  3. Barua, Alokesh & Chakraborty, Debashis & Hariprasad, C. G., 2010. "Entry, Competitiveness and Exports: Evidence from Firm Level Data of Indian Manufacturing," MPRA Paper 22738, University Library of Munich, Germany.

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