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1 – 10 of 45Jiawu Dai, Xiuqing Wang and Guang Yuan
The effect of market power on allocative efficiency is one of the most important topics in industrial organization and has undergone rigorous investigation since the 1970s…
Abstract
Purpose
The effect of market power on allocative efficiency is one of the most important topics in industrial organization and has undergone rigorous investigation since the 1970s. However, empirical studies based on firm-level data are relatively rare, especially with regard to China's tobacco and food industries. Accordingly, this research measures market power and allocative efficiency loss (AEL) of the main tobacco and food industries in China with micro data at firm level. Subsequently, it conducts a comparative analysis on them.
Design/methodology/approach
This research applies the New Empirical Industrial Organization (NEIO) model, consisting of five pricing and demand simultaneous equations to measure market power, and the AEL model to measure AEL induced by market power. To match with the micro data at firm level, the study implements a change in the traditional NEIO model by abandoning the aggregating process.
Findings
Empirical results show that China's tobacco industry, among five sectors selected, has the largest market power and thus the highest degree of AEL, whereas other sectors have apparently smaller market power and lower levels of AEL. Comparative analysis demonstrates a coarse positive correlation between market power and AEL in the selected industries. In general, the results accord well with the existing empirical findings and the reality.
Research limitations/implications
This study has some deficiencies. First, owing to the limitation of high-quality data, the sectors analyzed in this research are insufficient to sum up all the characteristics and rules of China's whole food industry. Second, this research only analyzes seller market power and leaves out buyer market power, which could be a direction for future research.
Practical implications
The relevant administrations should strictly limit the monopoly behaviors of enterprises and establish a favorable and competitive market environment, especially for the tobacco industry. This suggestion is precisely an important content of China's Supply-side Reform.
Originality/value
The research improves the NEIO model in that it can be estimated with micro data at firm level. To the best knowledge of the authors, very few empirical and comparative analyses exist on market power and AEL for China's tobacco and food manufacturers using micro data.
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Baowen Sun, Wenjun Jing, Xuankai Zhao and Yi He
This paper aims to clear whether the monopoly structure of the internet industry has produced market power and discussed the welfare change of the internet industry monopoly.
Abstract
Purpose
This paper aims to clear whether the monopoly structure of the internet industry has produced market power and discussed the welfare change of the internet industry monopoly.
Design/methodology/approach
By using new empirical industrial organization methods and taking the e-commerce market as an example, the authors measured market power and economies of scale of the internet platform companies.
Findings
Internet platform enterprises have formed scale economy, but it has not had market power, and the industry still maintains high levels of competition; also, the emergence of large enterprises may increase the welfare of consumers.
Originality/value
The conclusion of this paper clarified actual competition status of internet industry and provided a new foothold for regulation and ideas for the traditional industry to crack the Marshall Conflict.
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This study creates a measure of investor sentiment directly from retail trader activity to identify misvaluation and to examine the link between sentiment and subsequent returns.
Abstract
Purpose
This study creates a measure of investor sentiment directly from retail trader activity to identify misvaluation and to examine the link between sentiment and subsequent returns.
Design/methodology/approach
Using investor reports from a large discount brokerage that include measures of activity such as net buying, net new accounts and net new assets, this study creates a measure of retail trader sentiment using principal components. This study examines the relation between sentiment and returns through conditional mean and regression analyses.
Findings
Retail sentiment activity coincides with aggregate Google Trends search data and firms with the greatest sensitivity to retail sentiment tend to be small, young and volatile. Periods of high retail sentiment precede poor subsequent market returns. Cross-sectional results detail the strongest impact on subsequent returns within difficult to value or difficult to arbitrage firms.
Originality/value
This study links a rich measure of retail trader activity to subsequent market and cross-sectional returns. These results deepen our understanding of noise trader risk and aggregate investor sentiment.
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Luca Cacchiarelli and Alessandro Sorrentino
During the last years, the Italian pasta chain has been strongly affected by some events such as CAP reforms in the durum wheat sector that have progressively reduced government…
Abstract
Purpose
During the last years, the Italian pasta chain has been strongly affected by some events such as CAP reforms in the durum wheat sector that have progressively reduced government intervention in the market and a case of anti-competitive practices against pasta makers was identified and sanctioned by the Italian Antitrust Authority. The purpose of this paper is to detect the presence of market power in the different phases of the Italian pasta supply chain.
Design/methodology/approach
The authors applied the “first-pass” test proposed by Lloyd et al. (2009) on a set of monthly price indexes series from 2000 to 2013 in order to estimate if market power exists along Italian pasta chain.
Findings
Estimated results suggest that market power exists in the Italian pasta supply chain. Precisely, the presence of market power is detected for semolina producers in 2000–2004, for pasta makers in 2005–2008 as already identified by Italian antitrust and, finally, for retailers in 2008–2013.
Research limitations/implications
The method is a “first pass” test that only allows researchers to identify the presence of market power, but it is unable to estimate the intensity of this power.
Originality/value
The paper gives a contribute on estimation of market power in a food supply chain affected by CAP reform and antitrust intervention.
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Complaints about lower agricultural farm-gate price and higher consumer price have emerged in China in recent years. The large gap between dairy farm-gate price and consumer price…
Abstract
Purpose
Complaints about lower agricultural farm-gate price and higher consumer price have emerged in China in recent years. The large gap between dairy farm-gate price and consumer price gives rise to worries that China's dairy industry is characterized by strong degree of oligopoly. The purpose of this paper is to take the dairy processing industry as an epitome of China's food industry, and use a new approach to investigate whether it is oligopolistic and/or oligopsonistic.
Design/methodology/approach
Based on a new proposed Primal-Dual Solow Residual model, the authors first test the hypothesis that there are significant oligopoly and oligopsony powers in China's dairy sector, and the latter is stronger. The authors then turn to measure these two kinds of market power using regressions of the model.
Findings
The estimation results show that firms in the sector have both strong oligopoly and oligopsony power, but the latter is stronger than the former. Meanwhile, with the continuous reinforcement of competition in China's dairy sector, market power in both the upstream and downstream has decreased slightly.
Originality/value
This paper is the first to simultaneously test oligopoly and oligopsony power in China's dairy sector. The empirical results explicitly imply that more attention should be paid to the raw milk purchase market.
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Bhavya Srivastava, Shveta Singh and Sonali Jain
Amidst the backdrop of a wide array of structural developments that have revolutionized the competitive landscape of Indian commercial banking, this paper aims to empirically…
Abstract
Purpose
Amidst the backdrop of a wide array of structural developments that have revolutionized the competitive landscape of Indian commercial banking, this paper aims to empirically examine the role of two external monitoring mechanisms – competition and concentration on financial stability and further highlights the significance of bank-level heterogeneity in the nexus.
Design/methodology/approach
The study uses the Lerner index, defined through a translog specification, as a measure of market power. A system generalized method of moments technique accounts for the dynamic associations among the competition-concentration-stability nexus. The study further examines the moderating effect of ownership, size and capitalization on the nexus. The study also uses the Boone indicator and comments on the competition-bank stability relationship after controlling for bank governance.
Findings
The findings indicate that banks are less stable in a more competitive and higher concentrated environment. Exploring bank-level heterogeneity, first, the authors report that as competition increases, state-owned banks have greater incentives to undertake risky activities than private and foreign banks, which point to implicit sovereign guarantees that characterize the former. Second, the authors document an adverse influence of competition on the soundness of larger banks consistent with the “too-big-to-fail” assertion. Third, results corroborate the disciplinary role of regulatory capital and lend support to stricter capital norms under Basel III in a more competitive environment.
Originality/value
This paper is perhaps the first to capture competition and concentration in a single model; to reconcile conflicting evidence on competition-risk nexus; to shed light on the joint effect of competition and Basel accords for Indian banks.
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Abdul Latif Alhassan and Nicholas Biekpe
In less competitive markets, firms with market power are likely to exercise pricing power by setting output prices above their marginal cost, inducing welfare losses from resource…
Abstract
Purpose
In less competitive markets, firms with market power are likely to exercise pricing power by setting output prices above their marginal cost, inducing welfare losses from resource misallocation, managerial inefficiency and market instability. In order to address such market imperfections, it is important for regulatory authorities to identify the sources of pricing power and devise policies to address their adverse effects. In this context, the purpose of this paper is to undertake an empirical analysis to identify the determinants of pricing power in the South African non-life insurance market.
Design/methodology/approach
The authors estimate the Lerner competitive index as the proxy for pricing power using annual data on 79 firms from 2007 to 2012. In the second stage, the paper employs panel regression techniques in the ordinary least squares, random effects and generalised method of moment’s estimations to examine the effect of insurer level characteristics on pricing power.
Findings
The authors find the market to be characterised by firms with high pricing power. Domestic-owned insurers are found to exercise high pricing power compared with foreign-owned insurers. The authors also identify size, cost efficiency, product line diversification, market concentration, leverage and reinsurance contracts as the significant predictors of pricing power in the market. Finally, through a quantile regression analysis, the authors find the effect of cost efficiency, business line diversification and reinsurance to be heterogeneous across different quantiles of pricing power.
Practical implications
The findings provide regulatory authorities with useful indicators in addressing anti-competitive behaviour in high pricing power to enhance the stability of the insurance market and improve consumer welfare and economic development.
Originality/value
To the best of the authors’ knowledge, this is first paper to examine the determinants of pricing power and competitive behaviour in an insurance market.
Hanh Thi My Phan and Kevin Daly
This study aims to investigate both market concentration and bank competition of banking across six emerging Asian countries (e.g., Bangladesh, Indonesia, India, Philippines…
Abstract
This study aims to investigate both market concentration and bank competition of banking across six emerging Asian countries (e.g., Bangladesh, Indonesia, India, Philippines, Malaysia, and Vietnam) over pre and post the 2008 global financial crisis. The conduct parameter approach following the framework suggested by Uchida and Tsutsui (2005) is used to estimate bank competition in these countries. The study employs both seemingly unrelated regression (SUR) and three-stage least squares (3SLS) to estimate simultaneously the system of equations in our model. Generally we find a negative association between market concentration and bank competition across most of the countries in the study suggesting that banks in concentrated markets collude to generate higher profits. Monopolistic competition was the best description of competitive structure of banking across the majority of countries investigated by this study. The study fills the gap in the banking literature by investigating bank competition, concentration, and their relationship across emerging Asian economies over the 2008 global financial crisis. Moreover, several policy implications for banking industry are suggested.
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Claudio Oliveira De Moraes, José Americo Pereira Antunes and Márcio Silva Coutinho
This paper analyzes the effect of the banking market (concentration and competition) on financial development.
Abstract
Purpose
This paper analyzes the effect of the banking market (concentration and competition) on financial development.
Design/methodology/approach
In order to estimate the effects of banking concentration and competition on financial development, we conducted an empirical analysis using the System Generalized Method of Moments (S-GMM) through a dynamic panel data model.
Findings
The main results suggest that concentration and competition affect financial development. In particular, an increase in bank concentration may inhibit the country's financial development, due to the lack of competition. Our results do not confirm the controversy between concentration and competition, suggesting that concerning financial development, concentration is the reverse of competition.
Practical implications
The results of this study add a new perspective on banking market power: a financial system concentrated or uncompetitive constrains financial development.
Originality/value
The literature that combines the investigation of the effects of banking market structure (concentration) and banking market conduct (competition) on financial development is scarce. Although a concentrated banking sector can reduce competition through barriers to new entrants (which could expand financial services offer), it is also true that a concentrated banking sector can be competitive. In order to avoid the controversy, our paper chooses to look into a comprehensive approach considering independent measures of bank concentration and bank competition, which together refer to the banking framework.
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