Basic research questions Introduction

3

1.1 Basic research questions

Despite the importance of the CPO industry for Indonesia, and concerns over the presence of market power, to the author’s best knowledge, to date no study has been taken to investigate market power in this industry. This research is designed to fill the void by modelling and measuring market power in this industry. Specifically, the following research questions are addressed: • What is the most appropriate model to analyse and measure market power in the Indonesian CPO industry? • Do the dominant players in the Indonesian CPO industry exercise market power? • If these players do exert market power, does market power vary among them? • What is the type of interaction between the players? • What factors do affect the type of interaction between the players? • What are the policy implications of the research findings? The answers to the questions will provide useful information for promoting competition in the Indonesian CPO industry. Loughlin et al. 1999, p. 26 suggest that the understanding of competition issues among policy makers in Indonesia is often narrowed to market concentration or conglomerates, while in fact, competition is a more complex issue. A descriptive or statistical analysis that is often employed appears inadequately to prove whether producers in an industry behaved competitively or exercised some degree of market power. In contrast, a model could provide a measurement that reveals the behaviour of the producers, even that emerge from a non-cooperative mechanism. Although competition laws might not be able to address such tacit collusion, the evidence is useful for the policy makers in addressing the market power problems. Despite the fact that the competition issue in Indonesia has been widely examined from a legal perspective—especially after the introduction of the competition law—no market power model has been introduced as a tool to measure market power. The proposed analytical framework of this thesis is expected to give insights for modelling and measuring market power in the CPO industry. Universitas Sumatera Utara 4

1.2 Objectives of the study