Professional Documents
Culture Documents
The authors are grateful to Rakesh Basant for having useful discussions
at the early stage of writing this paper. The authors are also thankful to
an anonymous referee of this journal for valuable comments and
suggestions. Usual disclaimers apply.
Pulak Mishra (pmishra@hss.iitkgp.ernet.in) is with the Department of
Humanities and Social Sciences, Indian Institute of Technology
Kharagpur. Ujjwal Singh Rao (ujjwalsrao@gmail.com) is with American
Express.
Economic & Political Weekly
EPW
vol xlix no 33
1 Introduction
SPECIAL ARTICLE
comparison with other additive indices.2 Instead, the GRS appears to be the most accurate measure of market concentration in the Indian context.3
Hence, a better understanding of market structure requires
use of appropriate indices. This is very important as observed
market structure can influence industry-specific policies. Further,
while the thrust of the current policy regime is to enhance
market competition, the relationship between competition
and concentration is not very clear. A decrease in market concentration may not necessarily correspond to an increase in
market competition.4 A market even with high concentration
may have stiff competition among firms.5 Similarly, a market
with a low degree of sellers concentration may suffer from the
problem of monopolistic behaviour of the dominant firms,
particularly when the rest of the market is distributed across a
large number of small firms.6 This means that the definition of
competition should not be restricted to a low degree of sellers
concentration alone and whether high market concentration
will correspond to low competition also depends on the distribution of relative size of firms. Even if degrees of sellers concentration in two markets are equal, the market with more
uniform distribution of shares is likely to be more competitive.7 In other words, a low degree of sellers concentration is
neither necessary nor sufficient to have greater market competition as the extent of inter-firm rivalry depends on their size
distribution as well. Since additive measures fail to account for
inequality of firm size distribution adequately,8 they may not
be appropriate for understanding the extent of competition in
the market. Further, inequality of market shares has important
implications for strategic behaviour of firms. Hence, conclusions about market structures solely on the basis of additive
measures may be misleading.
In this perspective, the present paper attempts to understand how conclusions on structure of different markets in
Indian manufacturing sector may vary depending on the use
of additive and inequality measures. Additive measures are
more sensitive to the number of firms in the market whereas
inequality measures are influenced by the distribution of market shares. The paper is divided into four sections. The second
section provides an outline of different inequality measures.
The structure of different markets in Indian manufacturing
sector is then examined by using these inequality measures. A
comparative analysis on observed market structure according
to additive and inequality measures is carried out in the third
section. The fourth section concludes the paper with some
insights on the criterion that can be applied to examine appropriateness of various inequality measures.
2 Inequality Measures and Market Structure
RE =
si
ln(n) i = 1 i
Here si refers to the share of ith firm in total sales of goods in
the industry.
()
vol xlix no 33
EPW
SPECIAL ARTICLE
Decision
C > C + 2
C + < C < C + 2
C <C<C+
C 2 < C < C
C < C 2
Here, C denotes average value of the measure and denotes its standard deviation.
RMD
CV
REC
High
Information Technology
Information Technology
Low
Indecision
Ferrous Metals
EPW
Alkali, Automobile,
Automobile Ancillaries,
Beverages and Tobacco, Cosmetics,
Diversified,
Drugs and Pharmaceuticals,
Dyes and Pigments,
Electrical Machinery, Electricity,
Electronics, Fertilisers,
Food Products, Inorganic Chemicals,
Misc Manufacturing,
Non-electrical Machinery,
Non-ferrous Metals,
Non-metallic Mineral Products,
Organic Chemicals, Other Chemicals,
Other Textiles, Paints and Varnishes,
Pesticides, Petroleum Products,
Plastic Products, Polymers,
Ready-made Garments,
Rubber and Rubber Products,
Synthetic Textiles,
Textile Processing, Tyres and Tubes
vol xlix no 33
GINI
61
SPECIAL ARTICLE
Table 3: Ranking of Industries Based on the Additive and the Inequality
Measures
Industry
Industry
Alkali
Automobile
Automobile ancillaries
Beverages and tobacco
Cosmetics
Cotton textiles
Diversified
Drugs and pharmaceuticals
Dyes and pigments
Electrical machinery
Electricity
Electronics
Ferrous metals
Fertilisers
Food products
Information technology
Inorganic chemicals
Misc manufacturing
Non-electrical machinery
Non-ferrous metals
Non-metallic mineral products
Organic chemicals
Other chemicals
Other textiles
Paints and varnishes
Pesticides
Petroleum products
Plastic products
Polymers
Ready-made garments
Rubber and rubber products
Synthetic textiles
Textile processing
Tyres and tubes
HHI
1
12
25
18
10
31
8
28
7
26
17
24
33
9
34
30
13
32
27
15
29
21
19
22
2
6
5
23
4
14
11
20
16
3
8
10
31
6
3
33
25
32
15
30
4
22
13
18
34
1
23
29
20
11
27
24
16
19
7
14
5
28
2
17
12
26
21
9
Additive Measures
Inequality Measures
HOR ENT GIN GRS RMD CV REC GINI
8
10
29
7
4
33
25
32
14
31
5
20
12
22
34
1
21
28
17
11
26
24
16
19
6
15
3
30
2
18
13
27
23
9
7
11
32
9
6
33
19
30
13
29
4
22
25
15
34
1
18
31
26
10
27
21
17
23
5
14
2
28
3
16
12
24
20
8
1
15
26
18
7
32
16
28
12
27
9
25
33
17
34
3
13
31
29
19
30
21
20
23
2
11
6
24
4
8
10
22
14
5
9
10
29
4
3
34
25
32
17
30
5
19
8
24
33
1
21
28
12
14
26
23
16
15
7
18
6
31
2
20
13
27
22
11
34
12
32
8
6
28
33
16
21
22
3
9
7
17
19
1
31
14
10
5
11
18
15
23
13
24
2
26
4
30
25
27
29
20
33
14
30
4
6
34
31
16
23
17
3
8
2
28
13
1
29
11
5
12
9
18
15
32
19
26
10
20
7
27
21
24
22
25
33
12
34
7
6
32
31
25
20
2
3
11
8
19
28
1
27
22
13
10
16
18
15
21
9
23
4
29
5
26
17
30
24
14
34
12
30
8
6
27
33
16
22
20
3
7
5
21
17
1
32
13
10
9
11
18
15
19
14
26
2
23
4
31
25
28
29
24
The column n shows ranking of industries on the basis of average number of firms between
1988-89 and 2007-08.
Alkali
0.49
0.02
All
0.87
Automobile
0.19
0.08
0.14
Automobile ancillaries
0.08
0.06
0.09
0.62
0.28
0.57
Cosmetics
0.39
0.00
0.36
Cotton textiles
0.02
0.11
0.08
Diversified
0.19
0.04
0.33
0.06
0.25
0.27
0.14
0.06
0.31
Electrical machinery
0.05
0.59
0.38
Electricity
0.38
0.00
0.79
Electronics
0.11
0.20
0.43
Ferrous metals
0.57
0.48
0.79
Fertilisers
0.19
0.23
0.27
Food products
0.01
0.33
0.30
Information technology
0.64
0.00
2.22
Inorganic chemicals
0.20
0.07
0.30
Misc manufacturing
0.05
0.32
0.35
Non-electrical machinery
0.33
0.35
0.49
Non-ferrous metals
0.28
0.33
0.33
0.06
0.25
0.40
Organic chemicals
0.07
0.00
0.12
Other chemicals
0.10
0.00
0.11
Other textiles
0.17
0.24
0.21
0.38
0.30
0.65
Pesticides
0.17
0.06
0.39
Petroleum products
0.41
0.84
0.56
Plastic products
0.10
0.16
0.14
Polymers
0.34
0.28
0.42
Ready-made garments
0.29
0.08
0.36
0.10
0.17
0.36
Synthetic textiles
0.09
0.09
0.12
Textile processing
0.18
0.14
0.22
0.26
0.24
0.60
Neg - Negligible.
vol xlix no 33
EPW
SPECIAL ARTICLE
Inequality Measures
CV
REC
Electrical machinery
Electricity
Electronics
Ferrous metals
Fertilisers
Food products
Information technology
Inorganic chemicals
Misc manufacturing
Non-electrical machinery
Non-ferrous metals
Organic chemicals
+
+
Other chemicals
Other textiles
Pesticides
Petroleum products
Plastic products
Polymers
Readymade garments
Synthetic textiles
Textile processing
Here, + stands for an increase in concentration or inequality, - for a decline and, and
N stands for no change. Given the nature of their interpretation, necessary adjustments
have made for ENT and REC. The comparison is made between average values of the index
for the periods 1993-94 to 1999-2000 and 2000-01 to 2007-08. The values have been
rounded off to two decimal places for comparison. In case of GIN, three decimal points have
also been considered.
EPW
vol xlix no 33
63
SPECIAL ARTICLE
If sales of all the firms in a market segment increase by a constant factor, values of these measures will remain unchanged.
However, RMD fails to satisfy the principles of transfers. In
case of RMD, if a transfer is made between any two entities on
the same side of the mean, value of the measure remains unchanged. While the other three measures do satisfy this principle, there is a catch. Corresponding to any particular transfer,
the change in each measure has a different functional dependency on the entities.18
In case of CV, the change depends on the difference in the
entities, whereas for REC, it varies with the changes in the
ratio of entities. When GINI is considered, the change depends
Notes
1 The popularity of the HHI can be gauged from
the fact that it forms the basis on which the
United States Federal Anti-trust Authorities
make their decisions on market competition.
2 Majority of the additive measures of concentration are ridden with bias. For details in this
regard see Mishra et al (2011).
3 The GRS index, suggested by Ginevicius and
Cirba (2009), is based on Taylors series. Unlike
other additive measures, weights to different
firms in this index are assigned in such a way
that (i) the value of the index ranges from 0 to
1, (ii) if all firms in the industry have equal
market share, GRS=1/n, and (iii) it gives a
more accurate measure of market concentration. For the details on derivation of this index
see Ginevicius and Cirba (2009).
4 The majority of existing studies have relied
heavily on measures of concentration to draw
conclusions on market structure with the underlying assumption that higher the concentration less is the competition. However, a crucial
condition for this assumption to hold true is
that measures of concentration must capture
all other relevant aspects like distribution of
market size across firms. But, using data on the
Chinese manufacturing sector, Du and Chen
(2010) found evidence of a weak correlation
between some inequality measures (like the
entropy index) and additive measures of concentration, and thereby raised questions about
the reliance on additive measures alone.
5 For example, let us consider two markets each
with two firms. Let us further assume that in
the first market the firms have market share
0.60 and 0.40, and market share of the firms
in the second market are 0.5 and 0.5. Hence,
the HHI in the two markets are 0.52 and 0.50
respectively. Here, following the guidelines
of the US Department of Justice, both the
markets should be termed as concentrated.
But from data on market share it appears
that the second market is more competitive
vis--vis the first one as the firms have equal
market share.
6 For example, let us consider a market with 100
firms with the top-three firms having market
share 0.3, 0.15, and 0.05, and the rest of the
market is equally distributed among 97 small
firms. The HHI for this market is as low as
0.117, but the distribution of market share
clearly shows dominance by the top three firms
in the market.
7 Let us consider two markets each with threefirm concentration ratio of 0.6. Let us further
assume that, in the first market, market shares
are distributed as 0.2, 0.2, and 0.2, and it is
distributed as 0.5, 0.05, and 0.05 in the other.
The first market (with no inequality) represents
10
11
12
vol xlix no 33
EPW
SPECIAL ARTICLE
13
14
15
16
17
()
References
Allison, P (1978): Measures of Inequality, American
Sociological Review, Vol 43, No 6, pp 865-80.
Barla, P (2000): Firm Size Inequality and Market
Power, International Journal of Industrial
Organization, Vol 18, No 5, pp 693-722.
Basant, R and P Mishra (2012): How Has the Indian
Corporate Sector Responded to Two Decades
of Economic Reforms in India? An Exploration
of Patterns and Trends, Working Paper,
No 2012-02-02, Indian Institute of Management, Ahmedabad.
Dalton, H (1920): The Measurement of the Inequality of Incomes, The Economic Journal,
Vol 30, No 119, 348-61.
Dasgupta, P, A Sen and D Starrett (1973): Notes on
the Measurement of Inequality, Journal of
Economic Theory, Vol 6, No 2, pp 180-87.
Du, J and M Chen (2010): Market Competition
Appendix I
Average Values of the Inequality and Concentration Indices (1989 to 2008)
Industry
Alkali
Automobile
Automobile ancillaries
Beverages and tobacco
Cosmetics
Cotton textiles
Diversified
Drugs and pharmaceuticals
Dyes and pigments
Electrical machinery
Electricity
Electronics
Ferrous metals
Fertilisers
Food products
Information technology
Inorganic chemicals
Misc manufacturing
Non-electrical machinery
Non-ferrous metals
Non-metallic mineral products
Organic chemicals
Other chemicals
Other textiles
Paints and varnishes
Pesticides
Petroleum products
Plastic products
Polymers
Ready-made garments
Rubber and rubber products
Synthetic textiles
Textile processing
Tyres and tubes
Economic & Political Weekly
EPW
HHI
13
49
190
72
48
292
44
250
44
199
70
186
429
46
554
272
51
366
231
65
250
84
75
110
21
44
36
179
35
60
48
83
69
24
0.16
0.12
0.03
0.22
0.31
0.02
0.06
0.02
0.09
0.03
0.27
0.07
0.11
0.07
0.01
0.57
0.07
0.03
0.07
0.12
0.04
0.06
0.08
0.07
0.22
0.09
0.26
0.03
0.36
0.08
0.12
0.04
0.07
0.14
Concentration Measures
HOR
ENT
GIN
GRS
RMD
0.42
0.36
0.13
0.49
0.58
0.09
0.20
0.11
0.29
0.12
0.56
0.24
0.33
0.24
0.09
0.77
0.24
0.14
0.26
0.35
0.17
0.22
0.28
0.26
0.52
0.28
0.58
0.13
0.63
0.26
0.32
0.17
0.23
0.39
0.09
0.02
0.01
0.02
0.04
0.00
0.02
0.01
0.03
0.01
0.04
0.01
0.00
0.02
0.00
0.06
0.03
0.00
0.01
0.02
0.00
0.02
0.02
0.01
0.06
0.03
0.04
0.01
0.06
0.04
0.04
0.01
0.02
0.05
0.28
0.25
0.10
0.44
0.53
0.07
0.12
0.08
0.18
0.08
0.42
0.17
0.29
0.14
0.07
0.72
0.16
0.11
0.23
0.21
0.12
0.14
0.21
0.21
0.37
0.17
0.42
0.08
0.57
0.17
0.23
0.11
0.16
0.23
0.38
0.63
0.47
0.68
0.69
0.50
0.46
0.58
0.55
0.54
0.77
0.68
0.68
0.57
0.57
0.88
0.48
0.61
0.65
0.71
0.63
0.57
0.59
0.54
0.62
0.53
0.78
0.53
0.72
0.48
0.53
0.51
0.50
0.56
vol xlix no 33
2.13
2.58
4.38
2.42
1.93
4.68
3.14
4.28
2.82
4.23
1.68
3.44
3.73
2.89
5.03
0.99
3.09
4.30
3.77
2.57
3.99
3.29
3.08
3.49
1.87
2.83
1.64
4.10
1.64
3.01
2.77
3.57
3.20
2.25
Inequality Measures
CV
REC
1.03
2.23
1.26
3.81
3.65
0.48
1.23
2.13
1.64
2.01
3.92
3.30
6.31
1.52
2.41
11.43
1.48
2.72
3.81
2.57
2.92
1.96
2.15
1.20
1.90
1.53
2.88
1.89
3.35
1.52
1.79
1.57
1.66
1.55
0.84
0.67
0.85
0.58
0.52
0.83
0.83
0.79
0.76
0.34
0.46
0.67
0.62
0.76
0.81
0.24
0.81
0.76
0.70
0.63
0.73
0.76
0.73
0.76
0.63
0.77
0.47
0.81
0.47
0.80
0.75
0.81
0.79
0.71
GINI
0.48
0.78
0.63
0.83
0.84
0.67
0.60
0.74
0.69
0.71
0.86
0.83
0.84
0.70
0.73
0.94
0.63
0.77
0.81
0.82
0.80
0.73
0.74
0.71
0.75
0.67
0.88
0.69
0.85
0.63
0.68
0.66
0.66
0.69
65