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Does Market Structure Matter? Evidence From The Indian Cement Industry

Author

Listed:
  • SINGH K. Sanjay

    (Indian Institute of Management Lucknow, India)

  • SINGH K. Sunny

    (Indian Institute of Management Lucknow, India)

  • RAGHAV Shalini

    (RAGHAV Shalini)

Abstract

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.

Suggested Citation

  • SINGH K. Sanjay & SINGH K. Sunny & RAGHAV Shalini, 2014. "Does Market Structure Matter? Evidence From The Indian Cement Industry," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 9(3), pages 107-124, December.
  • Handle: RePEc:blg:journl:v:9:y:2014:i:3:p:107-124
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    References listed on IDEAS

    as
    1. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    2. Fred A. Forgey & Walter E. Mullendore & Ronald C. Rutherford, 1997. "Market Structure in the Residential Real Estate Brokerage Market," Journal of Real Estate Research, American Real Estate Society, vol. 14(2), pages 107-116.
    3. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-793, May.
    4. Kwoka, John E, Jr, 1981. "Does the Choice of Concentration Measure Really Matter?," Journal of Industrial Economics, Wiley Blackwell, vol. 29(4), pages 445-453, June.
    5. Peltzman, Sam, 1977. "The Gains and Losses from Industrial Concentration," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 229-263, October.
    6. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    7. Ravenscraft, David J, 1983. "Structure-Profit Relationships at the Line of Business and Industry Level," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 22-31, February.
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