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BUSINESS PRACTICES OF INDIAN CEMENT INDUSTRY: AN EVIDENCE OF POSSIBLE CARTELIZATION

BUSINESS PRACTICES OF INDIAN CEMENT INDUSTRY: AN EVIDENCE OF POSSIBLE CARTELIZATION Indian cement industry has time and again been suspected of cartelization in the last decade. However, whether it exhibits cartelization or not has been dealt very sparsely. Therefore, we employ a unique approach of testing for cartelization based on Grossack’s static-dynamic concentration ratios that combines a static and a dynamic measure of concentration and is thus a superior tool for assessing structural changes in market shares of companies. Our analysis shows an increase in the market concentration during the period 2008 to 2013. The problem does not seem to emanate from the demand-side only, as most cartelization allegations relate to periods marked by higher economic growth and higher consumption. Of late, cement industry has been under supply-side pressures (cost-push) in the form of rising input prices. This could have had a cascading effect on the prices of cement by putting demand-side pressures on the price of coal; a fact that has not been touched upon by most of the studies. Thus, understanding the supply-side pressures might help in rationalizing its proclivity for a cartelized market structure. Therefore, the answer for such business practices by cement industry could lie in the specific structure of the industry, price behavior of firms and the nature of competition. This is to ask: what are the structural factors that contribute to the tendency of cement players to form a cartel? The paper attempts to address these core questions on structure-conduct-and-performance (S-C-P) of the industry. The simultaneous price hike(s) in cement by all firms during the financial crisis cannot be justified. This certainly points towards a possible collusion. JEL codes: D4; F16; L1 Keywords: cement industry; cartel; S-C-P; imperfect competition; market concentration http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics, Management, and Financial Markets Addleton Academic Publishers

BUSINESS PRACTICES OF INDIAN CEMENT INDUSTRY: AN EVIDENCE OF POSSIBLE CARTELIZATION

D. TRIPATI RAO
Economics, Management, and Financial Markets , Volume 10 (4): 14 – Jan 1, 2015
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Publisher
Addleton Academic Publishers
Copyright
© 2009 Addleton Academic Publishers
ISSN
1842-3191
eISSN
1938-212X
Publisher site
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Abstract

Indian cement industry has time and again been suspected of cartelization in the last decade. However, whether it exhibits cartelization or not has been dealt very sparsely. Therefore, we employ a unique approach of testing for cartelization based on Grossack’s static-dynamic concentration ratios that combines a static and a dynamic measure of concentration and is thus a superior tool for assessing structural changes in market shares of companies. Our analysis shows an increase in the market concentration during the period 2008 to 2013. The problem does not seem to emanate from the demand-side only, as most cartelization allegations relate to periods marked by higher economic growth and higher consumption. Of late, cement industry has been under supply-side pressures (cost-push) in the form of rising input prices. This could have had a cascading effect on the prices of cement by putting demand-side pressures on the price of coal; a fact that has not been touched upon by most of the studies. Thus, understanding the supply-side pressures might help in rationalizing its proclivity for a cartelized market structure. Therefore, the answer for such business practices by cement industry could lie in the specific structure of the industry, price behavior of firms and the nature of competition. This is to ask: what are the structural factors that contribute to the tendency of cement players to form a cartel? The paper attempts to address these core questions on structure-conduct-and-performance (S-C-P) of the industry. The simultaneous price hike(s) in cement by all firms during the financial crisis cannot be justified. This certainly points towards a possible collusion. JEL codes: D4; F16; L1 Keywords: cement industry; cartel; S-C-P; imperfect competition; market concentration

Journal

Economics, Management, and Financial Markets – Addleton Academic Publishers

Published: Jan 1, 2015

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