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

  • Sandwip Kumar Das
  • Manoj Pant
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    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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    File URL: http://www.tandfonline.com/doi/abs/10.1080/09638190500524236
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    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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    1. 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.
    2. 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.
    3. Pant, Manoj & Pattanayak, Manoranjan, 2005. "Does Openness Promote Competition? A Case Study of Indian Manufacturing," MPRA Paper 2871, University Library of Munich, Germany.
    4. 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.
    5. Pravin Krishna & Devashish Mitra, . "Trade Liberalization, Market Discipline and Productivity Growth: New Evidence From India," Working Papers 96-8, Brown University, Department of Economics.
    6. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 55-66, February.
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