Are concentrated companies more profitable? The case of the tanning sector of skins in Ecuador
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Abstract
The present research identifies the market structure of the Tanning and Leather Sector in Ecuador ISIC: C151101and aims to establish the relation between profitability, costs and market concentration. The Herfindhal-Hirshman index used for cases of imperfect market structure has been calculated; and on the other hand, the solvency, liquidity and profitability to evaluate the financial performance of the concentrated companies. Additionally, four econometric models have been designed to which statistical tests of adecquacy have been applied. Simple and multiple linear regression analysis has been applied in several experiments through Ordinary Least Squares. Of the nine oligopoly companies, four companies have been identified that control 73,12% of the market, with a margin of return of 0,1391 average of the oligopoly for the period of study 2011-2015. One of the developed econometric models has made possible to show through Fisher’s statistical test that market concentration and production costs have an effect on profitability with a p-value of 0.00035, meaning that there is a significant linear relation of the oligopoly with cost production and market concentration, demonstrating that this group of companies makes profits because of their ability to concentrate the market.
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