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Examining the role of Market Concentration in enhancing Total Factor Productivity: A comparative analysis of selected Agri-based and Hi-Technology Sectors

Puneet Kaur

Purpose: This present research is an effort to determine market concentration in selected agri-based and hi-tech sectors and analyse market performance via total factor productivity (TFP) analysis. Earlier literature on a linkage between market structure and market performance has mixed results. Some researchers support that high market concentration results in high productivity, while other researchers provide evidence that the above relation is not true. To examine this in detail, this paper examines the impact of market concentration on TFP, and then makes a comparative analysis of selected Agri-based and Hi-Technology Sectors in India, with the data covering the period 2006-2017. Methods: The study has used Translog index for calculating TFP. TFP gives a complete picture rather than labour or capital productivity. Data for calculating productivity have been taken from Annual survey of Industries and deflated with respective indices to give a realistic picture. For market concentration data were taken from CMIE and four firm concentration ratios were calculated. Finally, regression analysis was applied to determine the relation between TFP and market power. Hi-tech sector has two industries viz. motor vehicles, trailers and semi-trailers#29; and chemicals & chemical products#20. Agri-based Industries relatively considered low in technology were food products#1o and tobacco and tobacco products#12. Findings: Results of 4-firm concentration ratio highlight moderate concentration Hi-tech sectors, viz. in automobile and chemicals & chemical products. Agri based low technology sectors, viz. Food Product industry had lowest concentration ratio, while Tobacco was the most concentrated. Next step was to find total factor productivity for these sectors. The regression analysis showed a significant relationship between TFP and Market Concentration in case High tech sector, viz. Motor Vehicles, Trailers and Semi-Trailers #29 and Chemicals and Chemical Products #20, however, in case of agri-based, low tech sector, viz. Food Products #10 and tobacco and tobacco products#12 the relation between TFP and Market Concentration was low and weak. The results don’t suggest that market concentration alone could be a strong predictor of productivity.