Does Market Structure Matter? Evidence from the Indian Cement Industry

Studies in Business and Economics no. 9(3)/2014: 107-124.

18 Pages Posted: 2 May 2015

See all articles by Sanjay Kumar Singh

Sanjay Kumar Singh

Indian Institute of Management Lucknow

Sunny Singh

Indian Institute of Management (IIM), Lucknow

Shalini Raghav

Ministry of Agriculture and Farmers Welfare

Date Written: December 31, 2014

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.

Keywords: Cement industry, Market Structure, Profitability, India

Suggested Citation

Singh, Sanjay Kumar and Singh, Sunny and Raghav, Shalini, Does Market Structure Matter? Evidence from the Indian Cement Industry (December 31, 2014). Studies in Business and Economics no. 9(3)/2014: 107-124.. Available at SSRN: https://ssrn.com/abstract=2601241

Sanjay Kumar Singh (Contact Author)

Indian Institute of Management Lucknow ( email )

Lucknow, 226013
India
+91 522 273 6637 (Phone)
+91 522 273 4005 (Fax)

HOME PAGE: http://ganga.iiml.ac.in/~sanjay/

Sunny Singh

Indian Institute of Management (IIM), Lucknow ( email )

Prabandh Nagar
off Sitapur Road
Lucknow, Uttar Pradesh 226013
India

Shalini Raghav

Ministry of Agriculture and Farmers Welfare ( email )

Krishi Bhawan
CS
New Delhi, DC
India

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