Analyzing the impact of Covid-19 on product market competition of Indian firms

Abstract

This paper analyzes whether Covid19 impacted the competitive market landscape of different industries significantly or not. Several studies have underscored the importance of a healthy product market competition for economic efficiency. Therefore, market regulators around the world have framed antitrust laws to deter anticompetitive behaviors of firms. Black swan events have been known to shake up the market equilibria and thus the intra industry competitiveness. The authors hypothesized that Covid19 outbreak also led to a statistically significant change in the product market competition in the Indian industry. There were two key reasons assumed for such an outcome. First, the supply chain of large firms which source raw materials and sell to customers in several parts of the country were disrupted. As a result, people were forced to purchase locally available goods and services. Second, consumer purchase power was decreased significantly due to low mobility and drop in payouts. This paper analyzed financial data of firms in major industries for this hypothesis. It was found that the Covid19 had a statistically significant impact on the product market competition in all sectors except the ones that were strongly oligopolistic or monopolistic in nature. Additionally, for smaller and younger firms, there was a massive liquidity crunch to keep the business running. Due to information asymmetry & weaker relationship with the lenders these smaller firms usually face more difficulty in raising capital. However, the government doled out several relief package to keep these small businesses afloat. These factors would have benefitted the local firms. This paper tried to understand the above question also by comparing the sales & market capitalization HHI for different size and age of firms for the sectors of publicly listed companies in India. Understanding such disruptive effect is important from the perspectives of policy makers, investors and firm managers.