in: THEORETICAL AND APPLIED STUDIES ON TURKISH ECONOMY VOL. I, Selim Adem HATIRLI Alper KOÇ Onur DEMİREL, Editor, İjopec London, İstanbul, pp.17-28, 2020
Traditional Industrial Economy theoretically suggests that new firms’ entries to
a sector will increase the level of competition in that sector. According to Bain
(1951), one of the SCP approach representatives, a new firm entry to an industry will reduce the concentration ratio and this will contribute to an increase in
the level of competition. However, according to Demsetz’s (1973) efficient structure hypothesis, the presence of efficient firms in a sector, i.e. existence of companies that have cost lower than others, will lead these firms towards gaining
higher market share. Thus, the concentration ratio of the sector will be higher.
Briefly, the SCP approach suggests that, as concentration increases, competition
decreases in a market (sector) and when the efficiency increases, so does the competition. In the recent studies conducted by representatives of the NEIO, it is
found that competition may exist in markets even if the concentration is high.
Panzar and Rosse (1987) model, which is one of the outcomes of these empirical studies, is used for estimating the level of competition in a market (sector) by
using firm specific data and eliminates the time restriction, it has frequently been
used in recent studies. Another important reason for preferring this approach is
that it provides precise information about the market structure. Specifically, in
1 Kayseri University, Faculty of Applied Sciences, Department of International Trade and
Logistics, Kayseri, Turkey. firstname.lastname@example.org.
ARE INSURANCE FIRMS COMPETITIVE IN TURKISH NON-LIFE INSURANCE SECTOR?
traditional approach, as mentioned above, the degree of competition in a market
is defined by the movement in concentration. As the concentration decreases in
a sector, competition increases in that sector (including vice versa). Panzar and
Rosse model, however, allows us to precisely determine the market structure as
monopoly, perfect competition or monopolistic competition.
In this study, Panzar and Rosse (1987) H statistic value, which is based on the
estimation of income equation in reduced form and is providing more clear information about market structure than traditional paradigm, has been estimated
for insurance companies operating in the elementary field in Turkey. For this, 34
insurance companies’ 2010-2018 balance-sheet data released by Turkey Insurance
Association was used. With this motivation, in the first chapter of our work a brief
information about the insurance sector in Turkey was given, in second chapter
Panzar and Rosse (1987) model was introduced, in third chapter literature was
summarized, in forth chapter the model and estimation results was given and
in the fifth chapter a general evaluation was made and the study was finished.