Market concentration and profitability: the empirical evidence from Serbian manufacturing industry

The impact of market concentration on profitability is a controversial question in industrial organization without a clear answer. The aim of the research is to investigate this prospective impact in the context of Serbian manufacturing industry. The main hypothesis of the research is that the increase in market concentration increases the profitability in the markets, due to the collusion of the dominant companies. We test this hypothesis by defining, estimating and testing the model describing the impact of structural and other control variables on market profitability by using secondary panel data for 122 markets, observed in 2015 and 2017. We obtained the data from 30 037 financial reports of the manufacturing industry companies. The model was estimated by using an error component two stage least squares estimator (EC2SLS). The results indicate a statistically significant positive impact of market concentration on profitability, empirically supporting the traditional market power hypothesis.