The effect of business cycle on the relationship between market structure and industrial performance in the Indonesian food and beverage industry

Abstract

The Indonesian food and beverage industry contributes significantly to the economy of the country. However, previous studies have shown that the industry has a high industrial concentration and price-cost margin (PCM). High industrial concentration can exert market power to set price levels and affect performance. In this context, favorable business cycle conditions have been proven to have the potential to improve industrial performance. Therefore, this study aimed to investigate the effect of business cycle on the relationship between market structure and industrial performance. The study procedures were carried out using data obtained from food and beverage industry in Indonesia for the period 1990-2019. Panel cross-sectional data and instrumental variable methods were also used through a fixed-effect approach. The results showed that business cycle positively affected market structure, while industrial performance was positively affected by market structure. In addition, business cycle positively affected the effect of industrial performance on market structure, as well as the effect of market structure on industrial performance.

Keywords

• Business cycle
• macroeconomy
• market structure
• industrial performance
• food and beverage industry
• L10