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Study on Indian and Global Market Structure

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Study on Indian and Global Market Structure
1

OBJECTIVE

Study the market structure using Herfindahl Index in the global market (Middle East) and Indian market for L&T Construction.

2

INTRODUCTION

The Herfindahl Index or Concentration index is a measure of the size of the firm in relation to the industry and an indicator of the amount of competition among them. Higher values of Herfindahl index generally indicates a decrease in competition and an increased market power, whereas lower values of Herfindahl index indicate the opposite. The Herfindahl index can be calculated using the formula below; = Where, Si- The market share of firm ‘i’ in the market N- The number of firms

The above calculated value of H can be inferred using the table1 below; Herfindahl index 0-1000 1000-1800 Above 1800 Competitive, but element of oligopoly Oligopoly/Monopoly Nature of Market Highly Competitive

3

MARKET STRUCTURE

We have followed the below steps to calculate the market share of each company;  The Total Revenue from operations for the year 2012-13 is collected from the annual report of the respective companies  The market share percentage is arrived based on the Total Revenue of the particular company to the total revenue of the sample selected for analysis Company INDIAN MARKET Larsen & Toubro 54.75 3308 Market Share (%) Herfindahl Index

1

Discussed during the Contact class

Assignment # 03 – Microeconomics

Page 1 of 5

Company Punj Lloyd Lanco Infratech Ltd NCC IVRCL Simplex Gammon India HCC

Market Share (%) 8.80 8.73 5.65 6.39 5.97 5.72 3.99

Herfindahl Index

MIDDLE EAST MARKET Larsen & Toubro Galfar Engineering Others 25.60 56.90 17.50 4199

3.1

Indian Market
: substantial increase in the number of contractors and builders : demand exceeds supply by a large margin : high working capital requirements, high financial charges, high taxation : suppliers- low (due to rapid increase in suppliers) Customers- low (lack of adequate infrastructure) : Very high across segments


References:  www.equitymaster.com, Construction sector analysis report dated 06 Nov 2012  http://www.constructionweekonline.in/article-6640indias_top_10_infrastructure_companies/1/  ‘The Herfindahal-Hirschman Index’ by Sterpen A Rhoades of the boards division of Research and statistic, March 1993 Assignment # 03 – Microeconomics Page 5 of 5
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