A Parametric Evaluation of Monopoly Power Using a structural Approach; In Iran’s manufacturing industry

The main purpose of this study is to estimate the extent of monopoly power in Iran’s manufacturing sector and to identify the relative Importance of Market power Doctrine and Cost efficiency Theory. To meet this ends Structural Approach and a generalized model of Lopez, el al (2002) was used. Using measures such as Lerner index and Conjectural variation, Monopoly power were estimated in 23 Iran’s 2-digit industries over the period 1995-2011. Equations used in this study (supply and demand) estimated by two stage least squares fixed effect method. Results indicate that in 74% of industries conjectural variable coefficient was high, which means there is cooperation between firms within these industries. In addition, in 91% industries with price higher than marginal cost, Lerner index was higher than 0.1, which means there is severe monopoly power in Iran’s manufacturing sector. In addition, the impact of concentration change on output price could be divided to two parts: market power and cost efficiency effect. Changes in concentration may increase or decrease output price because of market power and cost efficiency effect respectively. While concentration changes, in majority of industry output price is positive and significant. Considering the above mentioned results, it can be deduced that market power doctrine dominates over the cost efficiency theory in explaining monopoly in Iran's manufacturing sector.

Keywords:

Conjectural Variation , Lerner Index , Market power effect , Cost efficiency effect , Monopoly