Efficiency profitability and social welfare

Abstract

The structure of industries in the economy, the behaviour of firms and the individuals in these industries has been the central focus of industrial organisation studies. The newlinedynamics of these studies continuously evolved: from deviation of perfect competition newline(either because of scale economies or because of strategic behaviour), to competition, newlineand then to market structure. Non-availability of appropriate data and clear theoretical newlinemodels shifted the orientation towards New empirical industrial organisation , wherein, newlinethe focus was to understand the institutional details of particular industries, and to examine the firm behaviour. Then, the issue of market abuse by exploiting the market newlinepower or some form of implicit or explicit collusion has become the central problem. newlineThe thrust was to estimate mark-up that has been charged above the marginal cost, newlinehowever, it relies on the strong assumption of profit maximisation. newlineProfit maximisation is same as that of cost minimisation in a perfectly competitive newlinemarket. However, it does not hold true when the assumption of perfect competition is newlinerelaxed, which is more prevailing in industrial organisation studies. Profits of a firm newlinecan be higher despite not minimising costs, which could affect industry concentration newlineadversely and do have negative impacts on the welfare. It is difficult to identify the newlinefirm behaviour of cost minimisation or revenue maximisation looking at the accounting newlinedata, which has been the major drawback of the existing literature. newlineAgainst this backdrop, we try to address three important questions in this thesis newlinepertaining to the field of empirical industrial organisation. First, we will take up the newlinecost structure of firms: we will estimate the cost efficiency of firms to understand the newlinemark-ups (if exists) and their relationship with that of firm size (which is often used as newlinea proxy for market power) and business group affiliation (a source for possible collusive