The effect of subsidies on the mark up of the industry sector in Iran

The main purpose of this paper is to evaluate the impact of subsidy on market performance. To meet this end, the data of 122 four-digit industries collected by the Iranian Statistics Center during the years 1381-1398 HS were used. At first, the capital stock of 122 four-digit industries was calculated based on the exponential method and Klein's relationship. To evaluate the size of the markup and Lerner's index, following the non-structural approach, the translog production function was estimated. In the next step, while using the panel data model, the impact of variables such as subsidy, research and development, tax, education cost and capital stock on mark-up was estimated. The results of the research indicated that, firstly, in Iran’s Manufacturing sector, subsidies do not lead to market power, and secondly, variables such as research and development, education, and capital stock increase market power, and tax increases lead to a decrease in market power.