Does Liberalization Promote Competition?
AbstractUsing firm-level data from India, this paper investigates the distributional effects of deregulation on firm size and profitability. The data suggest that average firm size declines significantly in industries that deregulated entry. Firm entry leads occurs from the left hand tail of the size distribution with more small firms entering the market while the largest incumbent firms get significantly bigger following deregulation. Quantile regressions show that the shift in the distribution of firm size is non-linear with average firm size increasing till around the 15th percentile, and then getting significantly smaller till the 90th percentile while the largest percentile (95%) gets significantly bigger over the sample period. The marginal entry of small firms is consistent with an increase in competition following entry deregulation. Consistent with a decline in monopoly power, the Herfindahl index of firm sales also shows a significant decline. While summary statistics suggest a decline in average firm profits, quantile regressions show significant non-linearity and a heterogeneous impact of deregulation on profitability.
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Bibliographic InfoPaper provided by School of International and Public Affairs, Columbia University in its series Working Papers with number 1112.
Length: 41 pages
Date of creation: Oct 2010
Date of revision: Oct 2010
India; liberalization; competitions; deregulation; firm size; profitability; monopoly power;
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