Industrial concentration and price-cost margin of the Indonesian food and beverages sector

Sectoral and Firm-Level Determinants of Profitability: A Multilevel Approach

“…The sectoral market concentration can generally be expected to have a significant impact on firm profitability. Companies in highly concentrated industries may have the ability to prevent entry into the industry, leading to higher profits (Newmark, 2004;Setiawan et al, 2012;Hirsch et al, 2014). Also, better bargaining positions of large food firms can be expected due to the highly concentrated downstream vertical level, i.e.…”

“…We acknowledge there is large body of knowledge on factors impacting business performance (e.g. Hirsch et al, 2014;Setiawan et al, 2012;Lin et al, 2014;Chaddad & Mondelli, 2013;Sauka, 2014;Daher & Le Saout, 2015;Bamiatzi et al, 2016;Burger et al, 2017;Adámek et al, 2017;Blažková & Dvouletý, 2018a, 2018b. However, at the same time, there are still under-researched regions, where the empirical evidence is still scarce.…”

Price Rigidity and Industrial Concentration: Evidence from the Indonesian Food and Beverages Industry

“…To establish the relationship between the speed of price adjustment and industrial concentration, this research uses the equilibrium price suggested by the Cournot model of pricing . The Cournot model fits with the conditions of the Indonesian food and beverages industry, because this industry is characterized by an oligopoly structure and imperfect information (see Setiawan et al ., ,b). In addition, the large market in the Indonesian economy induces firms to compete in the quantity products to control the price following the Cournot oligopoly model.…”

“…Equation is estimated using a panel data model taking into account unobserved heterogeneity among subsectors. Generalised method of moments ( GMM ) is employed that uses as instrumental variables the natural logarithm of value added ( Size ), the growth of value added ( Growth ), the capital–output ratio ( COR ), the minimum efficient scale ( MES ), a dummy for competition law introduction ( Dlaw ), a dummy for cost increase ( DCUP ), and all dummies reflecting the subsectors (see Setiawan et al ., ,b) . The instrumental variables are used to correct for simultaneity bias due to the interaction between price and industrial concentration.…”

“…The Indonesian food and beverages industry is characterized by a high price–cost margin and technical inefficiency, and a high industrial concentration, with some sectors consisting of only a few large firms (see Setiawan et al ., ,b). A priori it is expected that firms in this highly concentrated food and beverages industry can use their market power to maintain the high price–cost margin and that they can create upward price flexibility when costs increase, but downward price rigidity when costs decrease (see Adji, ; Solikin and Sugema, ; Hutabarat, ; Central Bank of Indonesia, ).…”