00074918.2014.896242

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Bulletin of Indonesian Economic Studies

ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20

Market Structure, Price Rigidity, and Performance

in the Indonesian Food and Beverages Industry

Maman Setiawan

To cite this article: Maman Setiawan (2014) Market Structure, Price Rigidity, and Performance in the Indonesian Food and Beverages Industry, Bulletin of Indonesian Economic Studies, 50:1, 131-132, DOI: 10.1080/00074918.2014.896242

To link to this article: http://dx.doi.org/10.1080/00074918.2014.896242

Published online: 24 Mar 2014.

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Bulletin of Indonesian Economic Studies, Vol. 50, No. 1, 2014: 131–33

ABSTRACTS OF DOCTORAL THESES

ON THE INDONESIAN ECONOMY

Market Structure, Price Rigidity, and Performance in the Indonesian Food and Beverages Industry

Maman Setiawan ([email protected]) Accepted 2012, Wageningen University, the Netherlands

The Indonesian food and beverages industry contributes signiicantly to Indone-sia’s GDP and provides much employment. Yet it is characterised by high indus-trial concentration, in which the market power of a few irms controls prices or output. This has the potential to affect performance of all irms in the industry and to reduce consumer welfare by transferring consumer surplus to the irms. More important, it can cause a welfare loss (deadweight loss) to the economy. This thesis examines market structure, price rigidity, and performance, as well as the relation between them, in the Indonesian food and beverages industry. To do so, it uses two main frameworks: structure–conduct–performance and new empirical industrial organisation.

This thesis draws on irm-level (establishment) data from 59 subsectors of the food and beverages industry, sourced from manufacturing surveys conducted by Badan Pusat Statistik between 1995 and 2006. It uses econometric methods and data envelopment analysis (DEA), including static and dynamic panel-data mod-els, an instrumental variables approach, and generalised method of moments esti-mation. This research also adopts the bootstrapping approach to DEA estiesti-mation. The empirical results of this research show that industrial concentration con-verges to the same value across subsectors in the long run. Seven years after the introduction of Law 5/1999 on the Prohibition of Monopoly and Unfair Business Competition Practices (the competition law), industrial concentration and the price–cost margin were still high. In spite of this, the competition law stopped the upward trend of the price–cost margin and reduced the extent to which the mar-gin was inluenced by industrial concentration. Further, industrial concentration has a positive effect on the price–cost margin.

Many irms operating in the Indonesian food and beverages industry are tively ineficient. The results of this research suggest that there is a one-way rela-tionship between industrial concentration and technical eficiency: the former has a negative effect on the latter. This thesis inds evidence that high industrial concentration increases price lexibility, with the speed of price adjustment being higher when costs increase, rather than decrease, in concentrated subsectors. Finally, the results show that there is a simultaneous relationship between indus-trial concentration, price rigidity, technical eficiency, and the price–cost margin,

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132 Abstracts of Doctoral Theses on the Indonesian Economy

State–Business Relations in Post-1998 Indonesia: The Role of Kadin

Irawan Hartono ([email protected]) Accepted 2011, University of Groningen

This thesis discusses the changes in relations between the state and the business sector in Indonesia during 1998–2003, after the fall of the Soeharto regime. In doing so, it examines the role of Kadin (the Indonesian Chamber of Commerce and Industry, an organisation representing the interests of the business sector) in shaping economic policymaking. It also focuses on Indonesian politics, especially on the country’s move towards greater levels of democracy.

During the Soeharto regime, the government’s inluence on policy was predom-inant, so Kadin had only a subsidiary role. However, the economic and political reforms that started in 1997–98 have offered a new and challenging environment for Indonesian businesses, which have allowed Kadin, at least potentially, to amplify its inluence. To demonstrate whether and to what extent Kadin’s efforts to shape economic policymaking were successful in the post-Soeharto period up to 2003, this thesis uses the theory of corporatism to examine state–business inter-actions, and applies the concepts of legitimacy, business institutionalisation, and credibility to three detailed case studies: the establishment of the anti-monopoly law, the new rules regarding the procurement of government projects, and the new manpower law.

The analysis of these case studies demonstrates that Kadin’s initial efforts to become a larger player in the policymaking process were only partially success-ful, particularly its attempts to inluence the state’s economic policies that it asso-ciated with the business sector. In the immediate post-Soeharto era, Kadin was not the only organisation in Indonesian society that represented and promoted the interests of the sector; the economic and political reforms had made room for many other representatives to express their demands, and the government and the parliament had become much more receptive than they had been under Soeharto.

This thesis argues that the reformation that started in 1997–98 has placed Kadin in a very different politico-economic environment from that of Indonesia during the Soeharto regime. If in the New Order era Kadin’s independence was lenged by a directing state, then in the reformation era its decisions can be be chal-lenged by forces in Indonesian society, as well as from within its own structure. Unlike in the former era, in which its society was weak, in the reformation era as well as a bidirectional relationship between industrial concentration and price– cost margin.

This research suggests that policymakers in Indonesia should limit the size of irms by, for example, rejecting proposed mergers of big irms and supporting new entrants to the industry. Policymakers should also seek to prevent anti-com-petitive practices, which could reduce industrial concentration in the long run. Moreover, the government should revise the competition law, to enable better interpretation and stricter law enforcement.

http://dx.doi.org/10.1080/00074918.2014.896242