Empirical Analysis of the Determinants of Entry in the Brazilian Cement Industry
Keywords:
Entry strategies. Incumbent’s strategies. Cement industry. Spatial competition. Concentration.Abstract
The cement industry is a classic example of a concentrated-homogeneous industry, where entry is difficult. Despite that, there was an increase in the number of entrants in the Brazilian cement industry during the last few years. The purpose of the present work is to identify the main factors that impacted regional entry decisions in the Brazilian cement market from 2003 through 2012. Another purpose is to explore possible causes for the incumbents’ decision to accommodate new entry in these regions. Other studies that analyze the cement industry (Salvo, 2010; Miller & Osborne, 2014; Zeiden & Resende, 2010, 2009; La Cour & Møllgaard, 2003), have not been focused on entry. The present work adds to the academic literature about the behavior of Brazilian firms in concentrated market structures by focusing on entry analysis in these markets. The main factors considered are: consumption, consumption growth, transportation cost, number of active firms, number of plants, and regional characteristics, in the period of 2003 through 2012. A logit model is used to estimate the impact of these factors on the likelihood of entry and incumbents’ expansion. An exploratory analysis based on case discussion is also conducted in order to attempt to explain the incumbents’ behavior. The results indicate that besides regional characteristics, a high level of consumption, and a low market concentration – measured by the number of active firms or number of existing plants by region – are the conditions that most significantly favor entry. The incumbents’ expansion decision, on the other hand, is most strongly correlated with the potential for consumption growth, allowing entry to occur in the Brazilian regions with high levels of consumption but low levels of growth.
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