Market Concentration in Indian Manufacturing Sector:  Measurement Issues

NOTES

Market Concentration in Indian Manufacturing Sector: Measurement Issues

Pulak Mishra, Divesh Mohit, Parimal

facilitating greater competition in Indian industry for efﬁcient functioning of market forces. On the one hand, removal of entry and licensing barriers are expected to expose the domestic ﬁrms to international competition and to compel them to improve their efﬁciency and productivity by introducing new products, processes and practices. On the other hand, reforms in

The article attempts to examine the accuracy of the conventional additive measures of market concentration by using the criteria as suggested by Ginevicius and Cirba. It is found that the GRS Index of Ginevicius and Cirba is a more accurate measure of market concentration. The Herﬁndahl-Hirschman Index, the most widely used measure of market concentration, deviates far from accuracy. Hence, examining market concentration on the basis of the conventional indices may result in misleading conclusions and hence guide policy formulations in wrong directions.

The authors are thankful to Rakesh Basant and Bhagirath Behera for their useful comments and suggestions.

Pulak Mishra (pmishra@hss.iitkgp.ernet.in) is at the department of humanities and social sciences, Indian Institute of Technology Kharagpur, Kharagpur. Divesh Mohit and Parimal were ﬁnal year students of MSc (Statistics and Informatics) when this article was written.

he structure of a market is generally examined in terms of its size, degree of the seller’s concentration and competition from imports. Although the industrial organisation literature suggests a number of measures, in empirical research the state of competition or the degree of seller’s concentration in a market is generally measured by using market shares of the ﬁrms, n-ﬁrm concentration ratio (CR),

n

the Herﬁndahl-Hirschman Index (HHI), price-cost margin (PCM), proﬁtability, etc. In the Indian context also, past studies largely used these measures to examine the state of market concentration. For example, while Kambhampati (1996) assessed the structure of the market on the basis of CR, Ramaswamy (2006), Mishra

n

and Behera (2007), and Mishra (2008) used HHI as the measure of market concentration in the Indian industry sector. On the other hand, Basant and Morris (2000) and Mishra (2005) used n-ﬁrm concentration, the HHI and PCM to substantiate the ﬁndings. However, Pushpangadan and Shanta (2008) examined the dynamics of competition in terms of the persistence of proﬁt rates.

While the conclusions on market concentration are likely to be inﬂuenced by the measures used, very little attention is given to examining the accuracy and appropriateness of a particular measure in a given context or for a given industry. This, on many occasions, may result in contradictory ﬁndings on market competition. This article is an attempt to ﬁll this gap. In other words, its basic objective is to examine the accuracy of various alternatives measures of market concentration by using the criteria as suggested by Ginevicius and Cirba (2009). Addressing this issue is very important in the present context as the current regime of deregulation aims at

december 3, 2011

trade policies are aimed at facilitating these ﬁrms import materials, components and technology of better quality, in addition to bringing in import competition in the domestic marketplace. Since the effectiveness of these policy measures are judged in terms of the prevailing and/or changing state of market competition, use of an accurate and appropriate index is very important in measuring the degree of the seller’s concentration in the marketplace.

Alternative Measures of Market Concentration

Although there are several measures of market concentration, we consider some of those measures that take into account all the ﬁrms in a market. It should be mentioned that although it is very simple to compute and interpret, we do not consider the n-ﬁrm concentration ratio as the deﬁning measure of market structure. The n-ﬁrm concentration ratio is highly sensitive to the choice of “n”. Further, we deﬁne these indices in terms of market shares of the ﬁrms. We assume that a measure of market concentration is a function of the combined market share of all the ﬁrms in the industry.

Herﬁndahl-Hirschman Index: The HHI of market concentration is deﬁned as the sum of the squares of the relative sizes (expressed as proportions of the total size of the market) of the ﬁrms in the market. It is measured by using the formula,

n 2

HHI = si

i=1

Here, si stands for the market share1 of the ith ﬁrm in the industry. The value of the index declines with the increase in the number of ﬁrms and increases with the rising inequality among any given number of ﬁrms. The maximum value of this index is 1 when only one ﬁrm

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Economic & Political Weekly

NOTES

occupies the whole market. It is the most market players when compared with the commonly used measure as it is simple HHI. The Horvath Index is also known and combines both the number and size as a “comprehensive concentration index” distribution of ﬁrms in the industry, the as it accounts for market share of the important requirements of a measure of largest ﬁrm in a discrete manner and that concentration to be consistent with the of other ﬁrms in a weighted form. The value theory of oligopoly. of the index ranges between 3n2 – 3n + 1

n3

(for n 2) and 1, i e, 3n2 – 3n + 1 +25

n3

Horvath Index: The Horvath (1970) Index with n being the number of ﬁrms in of market concentration is deﬁned as, the industry.

Q

+25 V ¦VL (2 – si)

L Entropy Index: The Entropy Index is Here, s1 represents market share of the deﬁned as,

n

largest ﬁrm in the industry. The Horvath 1

ENT = si ln

Index assigns larger weights to all the i=1 (si ) The Entropy Index generally

Table 1: Criteria Used for Decision on Level of Market Concentration

Criteria Decision measures the degree of uncer

Cj C + 2ı c Moderate market concentration in industry j

C C – 2ı Low market concentration in industry j for HHI, tainty faced by a ﬁrm in the

jc

HOR, GIN and GRS

marketplace. In case of mono-

High market concentration in industry j for ENT

poly there is no uncertainty in

C– 2ı

c the market and the index takes

Cj C + 2ı c High market concentration in industry j for HHI, HOR, GIN and GRS the value zero. On the other Low market concentration in industry j for ENT

hand, when there are “n”

C– ı CC + ı Indecision on market concentration in industry j

cj c number of ﬁrms and all of

Table 2: Level of Market Concentration in Major Industries of Indian Manufacturing Sector across Various Measures
Period	Level of		Measure of Market Concentration
	Concentration HHI	HOR	ENT	GIN	GRS
1992-94	High	Polymers	Polymers	Nil	Alkalis	Polymers
	Moderate	Beverages and tobacco;	Beverages and tobacco;	Automobile ancilliaries;	Electricity; food	Beverages and tobacco;
		cosmetics, toiletries, soaps	cosmetics, toiletries, soaps	cosmetics, toiletries, soaps	products; paints	cosmetics,toiletries, soaps and
		and detergents; paints and	and detergents; cotton textiles;	and detergents; cotton	and varnishes;	detergents; cotton textiles;
varnishes; petroleum products	drugs and pharmaceuticals;	textiles; drugs and	diversified; paints and
	electrical machinery; food	pharmaceuticals; electrical	varnishes; petroleum products;
	products; paints and varnishes;	machinery; electricity;	plastic products
	petroleum products;	food products; paints
	plastic products	and varnishes; petroleum
products; polymers
1999-2001 High	Cosmetics, toiletries, soaps	Cosmetics, toiletries, soaps and	Nil	Alkali	Cosmetics, toiletries, soaps
	and detergents; polymers	detergents; petroleum products;			and detergents; polymers
polymers
Moderate	Beverages and tobacco; paints	Alkali; beverages and tobacco;	Alkali; automobile ancilliaries; Petroleum	Beverages and tobacco; food
and varnishes; petroleum	cotton textiles; drugs and	cosmetics, toiletries, soaps	products;	products; petroleum products
products	pharmaceuticals; electrical	and detergents; cotton textiles; polymers; tyres
machinery; food products; paints	drugs and pharmaceuticals;	and tubes
and varnishes; plastic products	electrical machinery;
misc manufacturing; paints
and varnishes; petroleum
products; polymers; tyres
and tubes
	Low	Nil	Nil	Food products	Nil	Nil
2006-08	High	Beverages and tobacco;	Nil	Nil	Alkali;	Beverages and tobacco;
		polymers			other textiles	polymers
Moderate	Alkali; cosmetics, toiletries,	Alkali; automobile ancilliaries;	Alkali; automobile ancilliaries;	Polymers; tyres	Alkali; cosmetics, toiletries,
	soaps and detergents; cotton	beverages and tobacco;	beverages and tobacco;	and tubes	soaps and detergents; cotton
	textiles; paints and varnishes;	cosmetics, toiletries, soaps	cosmetics, toiletries, soaps		textiles; diversified;
	petroleum products; tyres	and detergents; cotton textiles;	and detergents;cotton textiles;		non-ferrous metals;
	and tubes	drugs and pharmaceuticals;	drugs and pharmaceuticals;		paints and varnishes;
		electricity; food products;	ferrous metals; food products;		petroleum products
		misc manufacturing; non-ferrous	misc manufacturing;
		metals; petroleum products;	non-ferrous metals; paints
		polymers; tyres and tubes	and varnishes; petroleum
products; plastic products;
polymers; tyres and tubes
HHI: Herfindahl-Hirschman Index; HOR: Horvath Index;	ENT: Entropy Index;	GIN: Ginevicius Index
Source: Prowess, CMIE.
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them are equal in size, there are uncertainties in the market and the index takes the value ln(n).

Ginevicius Index: The Ginevicius Index is given by the formula

n

siGIN =

()

i=1 1 + n(1 – si)

This index is intended to assess two basic market indicators, the number of ﬁrms in the industry and their market share in a balanced way. It is based on the assumption that larger the number of suppliers, greater is the competition hence higher is the uncertainty in the market. The degree of this uncertainty depends on market shares of the ﬁrms when there is monopoly GIN = 1. On the other hand, as n ĺ , GIN ĺ . In other words, as the number of ﬁrms in the industry increases, the degree of seller’s concentration in the market declines. Hence, *,1

NOTES

Table 3: Ranking of Industries by Market Concentration across Various Measures (1989-2008) of market shares of the ﬁrms therein. The

Industry Measure of Market Concentration CV of Ranking

GRS Index suggested by Ginevicius and

HHI HOR ENT GIN GRS

Cirba (2009) is an attempt to overcome

Alkali 7 1 34 26 34 0.76 Automobile 14 10 9 23 27 0.48 the weighting problem and thereby to pro-

Automobile ancillaries 27 33 29 7 7 0.61 vide a more accurate measure of market

Beverages and tobacco 29 14 5 32 12 0.63 concentration. In this index, the weights

Cosmetics and toiletries* 23 8 3 33 31 0.69 to different ﬁrms are assigned in such a

Cotton textiles 28 30 28 3 3 0.77

Diversified	4	16	33	1	9	1.01 from 0 to 1, i e, *56, (ii) if all ﬁrms
Drugs and pharmaceuticals Dyes and pigments Electrical machinery Electricity Electronics	22 8 24 12 25	29 11 27 3 22	31 19 24 2 12	4 16 6 28 17	4 18 1 30 11	0.73 0.33 0.73 0.89 0.35 in the industry have equal market share, i e, if 1 si = n , 1GRS = n , and (iii) it gives a more accurate measure of market concentration. Accordingly, the index is deﬁned as,
Ferrous metals	33	25	6	27	15	0.50 n n2s1 + 0.3s2 iGRS = si()
Fertilisers	3	12	30	11	14	0.71 i=1 n2 + 0.3ns1si
Food products Information technology Inorganic chemicals Misc manufacturing Non-electrical machinery Non-ferrous metals	30 11 16 26 34 2	34 6 18 31 32 9	32 4 23 22 10 11	2 30 13 8 24 20	2 32 17 6 13 19	0.82 0.81 0.21 0.60 0.48 0.61	Here, s1 stands for market share of the largest ﬁrm in the industry. The GRS Index is based on Taylor’s series.2 The GRS Index satisﬁes all the three conditions mentioned above.
Non-metallic mineral products Organic chemicals	31 18	26 19	18 17	10 15	8 16	0.53 0.09	Market Concentration

way that (i) the value of the index ranges

Other chemicals	20	21	14	21	22	0.16 in Manufacturing
Other textiles	32	28	15	22	20	0.29 This section of the article attempts to
Paints and varnishes	6	5	8	29	29	0.81 examine market concentration for 34 major
Pesticides	9	13	20	18	24	0.35 industry groups of the Indian manufactur-
Petroleum products	5	2	7	31	28	0.94 ing sector. Market concentration is meas-
Plastic products	21	24	25	5	5	0.63 ured for each of the ﬁve indices discussed
Polymers	15	4	1	34	33	0.90
Readymade garments	10	17	26	12	23	0.39 above to see if the ﬁndings are consistent
Rubber and rubber products	19	15	13	25	26	0.30 across the measures. We use values of
Synthetic textiles	13	23	27	9	10	0.49 total sales of goods as a measure of size of
Textile processing	17	20	21	14	21	0.16	a ﬁrm. Decision on the level of market
Tyres and tubes	1	7	16	19	25	0.70	concentration3 in a particularly industry

*Includes soaps and detergents Source: Prowess, CMIE.

A More Accurate Measure of Market Concentration: GRS Index

A critical review of various measures of concentration discussed above suggests that the HHI assigns greater weight to the larger ﬁrms and a lower one to the smaller ﬁrms. This not only raises the importance of the larger ﬁrms in the index, it also reduces the effects of the smaller ﬁrms even if they are very large in number, giving a distorted measure of market concentration. Such a measure also limits the scope for understanding the role of the smaller ﬁrms in market competition. The Entropy Index differs widely from the HHI in terms of the weights that are assigned to the ﬁrms. It uses the logarithm of the market share rather than its value as the weight. As a result, the importance of the larger ﬁrms decreases, while that of the smaller ones relatively increases. As compared to the HHI, the Horvath Index, on the other hand, assigns larger weights to all the ﬁrms in the industry. Besides, the division of the measure into discrete and additive parts as well as the weights assigned to the ﬁrms are arbitrary. Although the Ginevicius Index emphasises both the number of ﬁrms in the industry and their market share, it fails to represent the true scenario of market concentration, parti cularly when the distribution of market share is highly skewed towards a few ﬁrms.

Thus, the weights assigned across the measures of market concentration are neither consistent nor theoretically justiﬁed. Hence, these measures are likely to provide a distorted state of market competition and the extent of distortions depend on the nature of the industry and the distribution

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is made by applying the criteria as mentioned in Table 1 (p 77). The necessary data are collected from the Prowess database of the Centre for Monitoring Indian Economy (CMIE), Mumbai.

Table 2 (p 77) presents the level of market concentration in the major industries of the sector during three time periods, viz, 1992 to 1994, 1999 to 2001 and 2006 to 2008 across different measures. We use the average value of each of the concentration measures in each period to examine the level of market concentration. It is observed that in each period, the level of market concentration in different industries is not consistent across the measures. For example, according to the HHI, Horvath Index and the GRS Index, polymers was a highly concentrated industry during 1992 to 1994, but it is alkalis that was highly concentrated during the same period as per the Ginevicius Index. Interestingly,

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Economic Political Weekly

Table 4: Change in Market Concentration in Major Industries by Measures of Concentration (1993-2008)
Industry		HHI			HOR			ENT			GIN			GRS
	1993-2000	2001-08	C	1993-2000	2001-08	C	1993-2000	2001-08	C	1993-2000	2001-08	C	1993-2000	2001-08	C
Alkali	0.14	0.18	+	0.38	0.46	+	0.97	0.88	+	0.080	0.095	+	0.23	0.31	+
Automobile	0.13	0.11		0.36	0.33	-	1.13	1.16		0.024	0.022	-	0.24	0.22	-
Automobile ancillaries	0.03	0.02	-	0.15	0.10	-	1.89	2.05	-	0.006	0.004	-	0.12	0.08	-
Beverages and tobacco	0.23	0.24	+	0.49	0.51	+	1.05	1.06	-	0.020	0.020	N	0.45	0.47	+
Cosmetics and toiletries*	0.36	0.29	-	0.62	0.55	-	0.79	0.91	-	0.040	0.030	-	0.58	0.50	-
Cotton textiles	0.02	0.02	N	0.08	0.08	N	2.10	2.07	+	0.004	0.003	-	0.06	0.06	N
Diversified	0.05	0.06	+	0.18	0.20	+	1.44	1.33	+	0.025	0.026	+	0.04	0.04	N
Drugs and pharmaceuticals	0.02	0.02	N	0.10	0.12	+	1.95	1.91	+	0.004	0.004	N	0.07	0.08	+
Dyes and pigments	0.07	0.08	+	0.23	0.26	+	1.31	1.28	+	0.024	0.024	N	0.13	0.16	+
Electrical machinery	0.02	0.03	+	0.11	0.14	+	1.88	1.82	+	0.005	0.005	N	0.08	0.09	+
Electricity	0.19	0.07	-	0.19	0.07	-	0.97	1.42	-	0.046	0.014	-	0.33	0.19	-
Electronics	0.05	0.06	+	0.18	0.23	+	1.64	1.54		0.006	0.005	-	0.11	0.14	+
Ferrous metals	0.10	0.06	-	0.32	0.24	-	1.68	1.81	-	0.003	0.002	-	0.29	0.20	-
Fertilisers	0.06	0.08	+	0.22	0.28	+	1.30	1.22	+	0.022	0.024	+	0.12	0.20	+
Food products	0.01	0.01	N	0.08	0.08	N	2.25	2.25	N	0.002	0.002	N	0.06	0.07	+
Information technology	0.09	0.07		0.29	0.24	-	1.42	1.61		0.013	0.003	-	0.23	0.16	-
Inorganic chemicals	0.06	0.06	N	0.23	0.21	-	1.40	1.42	-	0.021	0.019	-	0.16	0.14	-
Misc manufacturing	0.03	0.02	-	0.14	0.10	-	1.90	2.00	-	0.004	0.003	-	0.11	0.08	-
Non-electrical machinery	0.06	0.07	+	0.25	0.26	+	1.69	1.68	+	0.005	0.004	-	0.22	0.23	+
Non-ferrous metals	0.09	0.15	+	0.28	0.41	+	1.23	1.06	+	0.017	0.017	N	0.16	0.28	+
Non-metallic mineral products	0.04	0.03	-	0.17	0.15	-	1.77	1.79	-	0.004	0.004	N	0.12	0.11	-
Organic chemicals	0.06	0.05	-	0.21	0.20	-	1.51	1.48	+	0.012	0.013	+	0.14	0.13	-
Other chemicals	0.09	0.06		0.30	0.20	-	1.34	1.47		0.016	0.013	-	0.24	0.13	-
Other textiles	0.07	0.04		0.27	0.19	-	1.54	1.69		0.010	0.008	-	0.23	0.15	-
Paints and varnishes	0.20	0.23	+	0.49	0.53	+	0.86	0.80	+	0.057	0.058	+	0.33	0.38	+
Pesticides	0.11	0.06		0.33	0.22	-	1.20	1.37		0.026	0.022	-	0.24	0.14	-
Petroleum products	0.30	0.23	-	0.60	0.54	-	0.69	0.76	-	0.045	0.037	-	0.48	0.39	-
Plastic products	0.02	0.03	+	0.10	0.11	+	1.88	1.87	+	0.006	0.005	-	0.07	0.07	N
Polymers	0.39	0.29	-	0.65	0.58	-	0.71	0.81	-	0.063	0.042	-	0.61	0.49	-
Readymade garments	0.05	0.05	N	0.18	0.20	+	1.43	1.50	-	0.023	0.013	-	0.11	0.14	+
Rubber and rubber products	0.11	0.07	-	0.34	0.23	-	1.22	1.40	-	0.025	0.018	-	0.25	0.15	-
Synthetic textiles	0.03	0.05	+	0.14	0.20	+	1.63	1.53	+	0.012	0.013	+	0.09	0.14	+
Textile processing	0.04	0.05	+	0.17	0.20	+	1.61	1.49	+	0.013	0.015	+	0.12	0.13	+
Tyres and tubes	0.13	0.16	+	0.37	0.43	+	1.01	0.94	+	0.047	0.045	-	0.22	0.26	+

*Includes soaps and detergents; C stands for change, + for increase, - for decline, and N for no change.

Source: Prowess, CMIE.

according to the Entropy Index, none of the industries was highly concentrated during this period.

Similarly, when the HHI was used, market concentration was observed to be moderate in beverages in tobacco, cosmetics and toiletries including soaps and detergents, paints and varnishes, and petroleum products during 1992-94. But, in case of the Horvath Index and the Entropy Index, the level of concentration was moderate also in industries like cotton textiles, drugs and pharmaceuticals, electrical machinery and food products during this period. Such inconsistencies across the measures were observed during 1999-2001 and 2006-08 as well. Interestingly, according to the Ginevicius Index, market concentration was moderate only in a very few industries during the entire period under consideration, while in case of other measures it was moderate in many of the industries considered.

Economic Political Weekly

december 3, 2011

Further, only in the case of the Entropy Index was market concentration low during 1999-2001.

Ranking of the major industries of the sector by average market concentration during 1989 to 2008 is presented in Table 3 (p 78). It is observed that the ranking of the industries in terms of market concentration varies considerably across various measures. For example, according to the Horvath Index, alkalis appears to be the most concentrated industry, but the level of concentration in the industry is very low as per the Ginevicius Index and the GRS Index and the least when the Entropy Index is considered. On the other hand, in tyres and tubes market concentration is the highest according to the HHI and very high if we go by the Horvath Index. But, market concentration in the industry is quite low when we consider the other indices. Similarly, in paints and varnishes,

vol xlvi no 49

and petroleum products, the level of market concentration is very high if we go by the HHI or the Horvath Index or the Entropy Index, whereas it is very low when the Ginevicius Index or the GRS Index is used. Such wide variation in ranking across the measures is reﬂected in a high coefﬁcient of variation of ranks by measures in many of the industries like alkalis, automobile ancillaries, cotton textiles, cosmetic and toiletries including soaps and detergents, drugs and pharmaceuticals, electrical machinery, electricity, food products, fertilisers, information techno logy, polymers, petroleum products, paints and varnishes, plastic products, and diversiﬁed manufacturing (Table 3). Only in organic chemicals, inorganic chemicals, other chemicals, rubber and rubber products, and dyes and pigments the ranking, to some extent, appears to be consistent across

NOTES

Table 5: Ranking of Measures by Accuracy across Industries (1989-2008) share as per the formula of the the HHI can result in misleading conclu-

Industry Measure of Concentration

concentration measure. A con-sions and hence formulation of policies in

HHI HOR ENT GIN GRS

centration measure is the most wrong directions. This is very important

Alkali 4 5 2 3 1

accurate when R = and hence particularly when the level of market Automobile ancillaries 4 5 3 2 1 it ideally reﬂects the market concentration is compared across various Beverages and tobacco 4 5 3 2 1 situation. However, since in all industries and industry-speciﬁc competi-Cosmetics and toiletries* 4 5 3 2 1 the cases the difference between tion policies are formulated accordingly.

Cotton textiles 4 5 3 2 1 Automobile 4 5 3 2 1

the relative value of market As the smaller difference between the

Diversified 4 5 3 1 2

concentration and their value relative value of market share and its rela-

Drugs and pharmaceuticals 4 5 3 2 1

according to the formula of the tive value calculated by the formula of an

Dyes and pigments 4 5 3 2 1

concentration measure are dif-additive measure gives a more accurate

Electrical machinery 4 5 3 2 1

ferent, R is likely to be greater measure of market concentration, the GRS

Electricity 4 5 3 2 1

than zero. Hence, in the present Index may be used for this purpose. How-Ferrous metals 4 5 3 2 1 context, we are interested for ever, any deﬁnite conclusion in this regard Fertilisers 4 5 3 2 1 a more accurate measure of requires further research on the issue.

Food products 4 5 3 2 1 Electronics 4 5 3 2 1

market concentration, and not

Information technology 3 5 4 2 1

the most accurate one. We as-Notes

Inorganic chemicals 4 5 3 2 1

sume that the smaller the total 1 Although the market share of a ﬁrm may be

Misc manufacturing 4 5 3 2 1

deﬁned in terms of production or sales or employ

difference between the relative

ment, we have deﬁned as the ratio of the ﬁrm’s value in the market and their sales to total industry sales.

Non-electrical machinery 4 5 3 2 1

Non-ferrous metals 4 5 3 2 1

2 For the details on derivation of this index see

relative value in formula, the

Non-metallic mineral products 4 5 3 2 1

Ginevicius and Cirba (2009). more accurate is the measure

Organic chemicals 4 5 3 2 1 3 Here, market concentration is levelled as high, medium and low in relative sense, i e, in com-

Other chemicals 4 5 3 2 1 of market concentration.

parison with other industries in the sector to

Other textiles 4 5 3 2 1 From Table 5 it appears that

examine the ambiguities in inter-industry comthe GRS is the most accurate

Paints and varnishes 4 5 3 2 1 parison of it.

Pesticides 4 5 3 2 1

measure of market concentra-

Petroleum products 4 5 3 2 1

tion followed by the Ginevicius References

Plastic products 4 5 3 2 1

Index. In case of all the indus-Basant, R and S Morris (2000): Competition Policy in

Polymers 3 4 5 2 1

India: Issues for a Globalising Economy, project re

tries except information techno

port submitted to the Ministry of Industry, Govlogy and polymers, the Herﬁn-ernment of India, New Delhi.

Readymade garments 4 5 3 2 1

Rubber and rubber products 4 5 3 2 1

Ginevicius, R and S Cirba (2009): “Additive Measure

dahl-Hirschman ranks fourth

Synthetic textiles 4 5 3 2 1

ment of Market Concentration”, Journal of Busi-Textile processing 4 5 3 2 1 out of the ﬁve indices consid-ness Economics and Management, 10(3), 191-98. Horvath, J (1970): “Suggestion for a Comprehensive

Tyres and tubes 4 5 3 2 1 ered as far as the accuracy of

Measure of Concentration”, Southern Economic

* Includes soaps and detergents.

the measure is concerned. This Journal, 36, 446-52. Kambhampati, U S (1996): Industrial Concentration

measures. Such wide variations in deci-means that HHI is not a very accurate

and Performance: A Study of the Structure, Consions on market concentration across the measure of market concentration and, duct and Performance of Indian Industry (New Delhi: Oxford University Press).

measures create the necessity of examin-therefore, assessing the state of market

Mishra, P (2005): “Mergers and Acquisitions in the ing their accuracy and the next section is competition solely on the basis of this in-Indian Corporate Sector in the Post-Liberalisation Era: An Analysis”, unpublished doctoral thesis,

an attempt in this direction. dex, as it widely done in empirical re-

Vidyasagar University, West Bengal. Further, for many of the industries the search, may be misleading resulting in – (2008): “Concentration-Markup Relationship in Indian Manufacturing Sector”, Economic Politi

nature of change in market concentration wrong policy directions. As it is observed

cal Weekly, 43(39), 76-81. is also different across the measures in Table 5, the GRS Index, the Ginevicius Mishra, P and B Behera (2007): “Instabilities in Market Concentration: An Empirical Investigation in

(Table 4, p 79). Index and the Entropy Index provide bet-

Indian Manufacturing Sector”, Journal of Indian ter measure of market concentration as School of Political Economy, 19(3), 419-49. Accuracy of Measures Pushpangadan, K and N Shanta (2008): “Competition

compared to the HHI.

and Proﬁtability in Indian Manufacturing Sector”, In order to examine the accuracy of the Indian Economic Review, 43(1), 103-23.

Conclusions Ramaswamy, K V (2006): “State of Competition in In

measures of market concentration we use

dian Manufacturing Industry” in P S Mehta (ed.), the criterion as suggested by Ginevicius Hence, although the HHI is widely used in A Functional Competition Policy for India (New

Delhi: Academic Foundation).

and Cirba (2009). In this criterion, both empirical research to measure market actual and calculated market share are concentration, from the discussion here we

used. According to this criterion,	can say that it is not a very accurate measure
n R = _si – s * i_ i=1 Here, R stands for accuracy of a concentration measure, s for calculated market share, and s * for the relative value of market	of market concentration, parti cularly, in comparison with the alternative measures like the Entropy Index, the Ginevicius Index or the GRS Index. Hence, examining market concentration on the basis of	available at K C Enterprises 3-6-136/6, Street No 17, Himayathnagar Hyderabad 500 029, Andhra Pradesh Ph: 66465549
80	december 3, 2011	vol xlvi no 49		Economic Political Weekly