Competition and Market Power in Deregulated Fertilizers in India

Working Paper
Published on 10 November 2017

Abstract

This paper by Beáta Itin-Shwartz (2017) investigates competition and market share dominance in the Indian fertilizer sector during a process of deregulation, using a newly constructed database. The author presents an entry model (similar to Bresnahan and Reiss 1991) for a homogenous good and symmetric firms. An additional parameter, lambda, is introduced to allow for market share dominance by the former monopoly. In the empirical application, the size of this advantage is linked to competition between the private and cooperative sectors in the credit market. She uses two approaches to make inference on the effect of new firm entry on the toughness of competition in the absence of good price data. The first, borrowed from Abraham et al. 2007, is estimating a quantity equation, with a number of firms ordered probit selection rule. This provides additional information on the effect of entry on quantities, which can point to a competitive effect, but not quantify it. The second approach original to this paper is using a change in price regulation that took place during the period of analysis. By assuming the variable profits were constant with regard to the number of firms in a period of fixed prices, the author can infer the entry effect on the variable profits in a period with market prices.