Market Power influence on the Suboptimal levels of Investment: Evidence from Ecuador

Resumen

The levels of investment in Ecuador have been low, while the levels of market power have increased in certain
sectors. The objective of our study is to evaluate the social optimal levels of investment of the Ecuadorian firms
and their relationship with market power, through the comparison of profitability rates and concentration indices
to examine if they are consistent with the expected behavior of a competitive market. We use the balance sheets
reported by the firms to the Superintendencia de Compañías, Valores y Seguros (SCVS), and the information of
macroeconomic variables from the Central Bank. With this panel data we estimated a fixed effects model
considering as dependent variables the profitability (return on assets, ROA) and investment, and as main
independent variable the level of market power (Herfindahl-Hirschman Index). The results suggest that the level
of concentration has a positive relation with the profitability and a negative relation with corporate investment.