Evaluation of Market Structure and Measurement of Market Power in Iran’s Industrial Sector

Document Type : Research Paper

Authors

1 , Professor of Economics, Payame Noor University, Iran.(Corresponding Author).

2 , Professor of Economics, University of Tehran, Iran.

3 Ph.D. Student of Economics, Payame Noor University, Tehran, Iran.

Abstract

The government's exclusive access to oil resources, governmental economy and the orientation of article 44 of constitution regarding privatization, are the main hindrances that affect competition, productivity and efficiency in Iran’s economy. In this regard, by the enforcement of "the law of general policies of article 44" it is aimed to restrict the government monopoly. The main objective of this paper is to identify Iran's markets structure and to measure the monopoly power in industrial markets based on 2-digit ISIC codes. To achieve this purpose, the Hall-Roger approach is applied to measure monopoly power in the manufacturing industries for the period of 1381 to 1397. The findings show that in most industries, the mark-up index is more than 1.2 and the Lerner index is more than 0.16, which indicates the existence of monopoly power. Sectors such as cement, lime and plaster, and pharmaceutical industries have the highest level of monopoly power. In addition, the results show that the industries under investigation lack economies of scale.

Keywords

Main Subjects

References

Amountzias, C. (2017). An investigation of The Degree of Market Power in The Greek Manufacturing and Service Industries. Journal of Industry, Competition and Trade, 17(4), 447-464.
Appelbaum, E. (1979). Testing Price Taking Behavior. Journal of Econometrics, (9), 283-94.
Appelbaum, E. (1982). The Estimation of the Degree of Oligopoly Power. Journal of econometrics, (19), 287-99.
Azzam, A. (1997). Measuring Market Power and Cost- Efficiency Effects of Industrial Concentration. Journal of Industrial Economics, 45(4). 377-386.
Azzam, A. & Rosenbaum, D. V. (2001). Differential Efficiency, Market Structure and Price. Applied Economics, 33, 1351- 1357.
Autor, D., Dorn, D., Katz, L. F., Patterson, C., & Van Reenen, J. (2020). The fall of the Labor Share and the Rise of Superstar Firms. The Quarterly Journal of Economics, 135(2), 645-709.
Basu, S. (2019). Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence. Journal of Economic Perspectives, 33(3), 3-22.
Boone, J. (2008). Competition: Theoretical Parameterizations and Empirical Measures. Journal of Institutional and Theoretical Economics, 164:587,611.
Bottini, N., & Molnár, M. (2011). How Large are Competitive Pressures in Services Markets?. OECD Journal: Economic Studies, 2010(1), 1-51.
Bresnahan, T. F. (1982). The Oligopoly Solution Concept Is Identified. Economics Letters, 19, 87-92.
Christopoulou, R., & Vermeulen, P. (2012). Markups in the Euro Area and the US over the Period 1981-2004: a Comparison of 50 Sectors. Empirical Economics, 42(1), 53-77.
Clark, R. & Davies, S. (1982). Market Structure and Price-Cost Margins. Economica, 49, 277-287.
Cowling, K. I., & Waterson, M. (1976). Price-Cost Margins and Market Structure. Economica, 43(171), 267-274.
Grieco, P. L., Murry, C., & Yurukoglu, A. (2022). The Evolution of Market Power in the US Automobile Industry. Working paper, 1-41.
Hall, R. E. (1988). The Relationship between Price and Marginal Cost in U. S. Industry. Journal of Political Economy, 96, 921-47.
Huang, T. H., Liu, N. & Kumbhakar, S. C.  (2018). Joint estimation of the Lerner Index and Cost Efficiency Using Copula Methods. Empirical Economics, 54(2), 799-822.
Hussain Khan, H. A., Kutan A. M., ram Naz, I & Qureshi, F. Z. (2017). Efficiency, Growth and Market Power in The Banking Industry: New Approach To Efficient Structure Hypothesis. North American Journal of Economics and Finance, 42, 531-545
Iwata, G. (1974). Measure Ment of Conjectural Variation in Ligopoly, Econometricac, 42, 947-66.
Kumbhakar, S. C., Baardsen, S., and Lien, G. (2012). A New Method For Estimating Market Power With an Application to Norwegian Sawmilling. Review of Industrial Organization, 40(2), 109-129.
Kasman, A. N. (2002). Cost Efficiency, Scale Economies, and Technological Progress in Turkish Banking. Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, 2(1), 1-20.
Lau, L. J. (1982). On identifiying the degree of competitiveness from industry price and output data. Economic Letters, 10, 93-99.
Martins JO, Scarpetta S, &  Pilat D (1996) Mark-up Ratio in Manufacturing Industries: Estimation for 14 OECDcountries. OECD, Working Papers, 1-48.
Memon, M., & Ghulam, Y. (2019). Impact of Privatisation and Broader Reforms on the Competitiveness of the Cement Manufacturing Industry in Pakistan. Review of Economics and Finance, 16(2), 76-88.
Mirza, F. M., Bergland, O., & Khatoon, I. (2016). Measuring the Degree of Competition in Pakistan’s Banking Industry: an Empirical Analysis. Applied Economics, 48(53), 5138-5151.
Muriithi, D. (2021). Market Structure and Banks Pricing Behaviour: The Case of Kenya (No. 52). KBA Centre for Research on Financial Markets and Policy Working Paper Series, 1-29.
Panzar, J. C., & Rosse, J. N. (1987). Testing for Monopoly Equilibrium. Journal of Industrial Economics, 35(4), 443-456.
Polemis, M. L., & Fotis, P. N. (2016). Measuring the Magnitude of Significant Market Power in the Manufacturing and Services Industries: a Cross-Country Approach. Journal of Industry, Competition and Trade, 16(1), 51-79.
Rezitis, A. N., & Kalantzi, M. A. (2013). Measuring the Degree of Market Power in the Greek Manufacturing Industry. International Review of Applied Economics, 27(3), 339-359.
Rezitis, A. N., & Kalantzi, M. A. (2012). Assessing Competitive Conditions and Welfare Losses in the Greek Food and Beverages Manufacturing Industry: An Extended Hall-Roeger Approach. Economics Bulletin, 32(2), 1413-1427.
 Rezitis, A. H., & Kalantzi, M. (2012). Measuring Market Power and Welfare Losses in the Greek Food and Beverages Manufacturing Industry. Journal of Agricultural & Food Industrial Organization, 1(10), 1-33.
Rezitis, A. N., & Kalantzi, M. A. (2011). Investigating Market Structure of the Greek Manufacturing Industry: A Hall-Roeger approach. Atlantic Economic Journal, 39(4), 383-400.
Roeger, W. (1995). Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for US Manufacturing. Journal of Political Economy, 103, 316-30.
Steen, F., & Salvanes, K. G. (1999). Testing for Market Power Using a Dynamic Oligopoly Model. International Journal of Industrial Organization, 17, 147-177.
Wilhelmsson, F. (2006). Market Power and European Competition in the Swedish Food Industry. Journal of Agricultural & Food Industrial Organization, 4(1), 3-32.

Files

History

  • Receive Date: 14 August 2022
  • Revise Date: 24 October 2022
  • Accept Date: 14 November 2022

Share

How to cite

Statistics