Market Concentration and Risk-Prevention Incentives: The Case of the Hard Disk Drive Industry

This paper studies the impacts of market concentration on risk-prevention incentives by closely observing the changes in the price and quantity in the hard disk drive industry before and after the 2011 Thailand floods. The com bination of high price and low quantity persisting after the floods indicates that the floods triggered the formation of a de facto cartel, and a shift in demand for hard disk drives alone is unable to explain the observed combination. Our findings have profound implications for Southeast Asia, since some firms may have perverse risk-prevention incentives at the expense of other parties, and consequently, the region's reputation being prone to natural disasters may discourage foreign direct investment.

ERIA-DP-2016-07