Market power, economies of scale and total factor productivity (TFP) growth: empirical evidence from the Indonesian food and beverage industry

Purpose This research investigated the relationship between market power, economies of scale and total factor productivity (TFP) growth for the Indonesian food and beverage industry. Design/methodology/approach This research used firm-level data of 23 subsectors for the period from 1990 to 2021. The data was sourced from a manufacturing survey conducted by the Indonesian Bureau of Central Statistics (BPS). The Solow Residual-Based Model was applied to explore the relationship between market power, economies of scale and TFP growth. Findings The results show that most of the subsectors were characterized by strong market power having a markup parameter exceeding the value of 1. Furthermore, the results show that the food and beverage industry is characterized by diseconomies of scale. This research found negative relationships between market power and TFP growth as well as TFP growth and economies of scale. Also, a positive relationship was reported between market power and economies of scale in the Indonesian food and beverage industry. Originality/value Our research contributes to the literature by exploring the relationship between TFP growth, economies of scale and market power. The existing literature often focuses only on the assessment of TFP growth and/or market power, while studies that examine their relationship with economies of scale are lacking.