Instabilities in Market Concentration:An Empirical Investigation in Indian Manufacturing Sector

The paper investigates instabilities in market concentration in Indian manufacturing sector in the post-liberalisation era. The paper applies time-series unit ischolar_main test to examine instabilities in market concentration and random effects model to identify the determinants of the nature of time path of market concentration in the sector. The paper finds that there are instabilities in market concentration in all the major industry groups of Indian manufacturing sector. It is also found that while size of the market, advertising, distribution and R&D related efforts and industry risks have positive impact on market concentration, import competition, export performance and marketing efforts have negative influence on the same. The combined impact of a unit change in the variables with positive impact appears to be much higher than that in the variables with negative impact. This causes the time-series of market concentration to become explosive, i.e., deviating away from equilibrium. Hence, in order to ensure greater competition in the market place, it is necessary to control for restrictive business practices by the firms, and the risks and uncertainties of operation in the market. It is also necessary to integrate intellectual property law with competition law and encourage international trade. The policies and regulatory structures should have necessary provisions in this regard.