# Market structure, profitability and trade performance: The case of the Korean manufacturing industry

#### Abstract

In this dissertation, we examine the theory of market structure and performance. First of all, we try to generalize and extend the usual models by revising the mathematical derivations. We then test these models by applying them to the Korean manufacturing industry. We begin by extending the existing models from Industrial Organization for the performance of an industry by introducing trade variables. Although this would seem vitally important for any open economy, it has seldom been attempted before. We develop a series of three models: the first assumes foreign and domestic prices to be the same; the second allows foreign and domestic prices to differ but assumes that firms hold to a constant domestic proportion strategy; the third allows for both different prices and a changing strategy. Moreover, our models relax the usual assumptions about costs and retain those terms for the reactions of firms to one another which are usually discarded; this allows the models to exhibit the link of profitability to minimum efficiencies of scale and to the expansion of market size. Finally, we conduct a cross sectional analysis for the 91 4-digit Korean manufacturing industries of 1985. Next, we follow Robert Hall's pioneering attempt to introduce time series analysis into industrial organization. However, we extend his work by developing a general productivity model which does not assume constant returns to scale. In fact, we are actually able to develop a test for constant returns to scale. Finally, we make Hall's model more realistic by including material costs as well as labor and capital costs. We then conduct a time series analysis to determine the degree of market power in the Korean manufacturing industries from 1967 to 1987. As for the empirical results: the time series analysis shows Korea to have, generally, both market power and increasing returns to scale. The results of the cross sectional analysis conform to our theoretical expectations. The success of these empirical studies give us some confidence in the models we developed.

#### Subject Area

Economic theory

#### Recommended Citation

Koh, Young Sul, "Market structure, profitability and trade performance: The case of the Korean manufacturing industry" (1990). *ETD Collection for Fordham University*. AAI9118837.

https://research.library.fordham.edu/dissertations/AAI9118837