Market Share, Concentration and Profitability of Ethiopian Leather Industry

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Addis Ababa University


Market structure is determined by the entry and exit decisions of individual producers. These decisions are driven by past profit rate and expectations of future profits which, in turn, depend on the nature of competition within the market generally speaking. Profitability is therefore directly dependent on the market structure that the firm has been operating in the defined geographic and product market. There are two influential industrial organization hypotheses that deal with relation between market structure and firms performance. The structure-conduct-performance paradigm believed that firms’ performance is highly related with the existence of concentration which directly leads to collusion among firms in the market and create monopoly power in which all the firms in the industry get monopoly profit. On the other hand, the efficiency hypotheses suggests that firms’ performance is determined by efficiency gain in the market which minimizes costs and expands firms’ market share so that firm with high market share (efficient) will get market power and profit rate to each firm depends on their performance. Based on these classical theories the study examines whether the SCP paradigm or the efficiency structure paradigm determines firm’s performance. The study finds that the structural conduct approach holds true in Ethiopian leather industry. That means, there exists monopoly power in the industry. The concentration ratio proxy for monopoly is significant while the efficiency variable explained by the market share is insignificant. The barrier of market entry and exit is also significant which sustains the monopoly power by avoiding contestability in the domestic market. However the ten year trend of concentration dynamics has been decreasing from 66% to 33%. Thus, if this trend continues the monopoly power may not exist in the near future.



Market share, Concentration