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Profitability in emerging markets: Efficiency or market power? A Study of Indian firms

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  • Ramesh Jangili

    (Indira Gandhi Institute of Development Research)

Abstract

The legal systems in emerging economies are weak and hence unsuccessful in completely eliminating market abuse, which could benefit some segment of firms to earn higher profits. This further leads to market imperfections and eventually to higher concentration. The problem persists even after strengthening market discipline and improving overall competition in emerging markets. Large and group firms in these markets could gain differential advantage and destroy value. We analyse the profitability of firms in an emerging economy, India; and find that large and group firms are more profitable than small and standalone firms. Further, we explicitly use cost efficiency of firms to understand the impact of market power on profitability and find that large firms in concentrated industries generate more profits. We also find that higher profitability of large firms is due to market power.

Suggested Citation

  • Ramesh Jangili, 2020. "Profitability in emerging markets: Efficiency or market power? A Study of Indian firms," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2020-003, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2020-003
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2020-003.pdf
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    References listed on IDEAS

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    Cited by:

    1. Baiju Pallayil & Sunil Kumar Ambrammal, 2022. "Size and performance of Indian manufacturing firms: new evidence from dynamic panel system GMM approach," SN Business & Economics, Springer, vol. 2(12), pages 1-22, December.

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    More about this item

    Keywords

    Profitability; Size; Group affiliation; Cost efficiency; Market power;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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