Capacity-Expansion and Competition Enforcement Policy

This paper seeks to examine the role of competition enforcement authorities when pre-entry restrictions on capacity expansion are removed. For that purpose it evaluates the minimum efficient scale (MES) of operation of the cement industry in India. Findings of the empirical exercise show that cement market of the country can accommodate a reasonably good number of producers and hence is capable of providing a competitive environment if firms were to operate at MES level. However, an assessment of the installed capacity of the cement plants indicates that many cement companies with single or multiple plants tend to have firm sizes much beyond the prescribed level by the estimated MES. Thus the possibility of erecting strategic barrier by some of the producers to forestall competition may not be ruled out.