Price-Cost Margin and Technical Efficiency in the Vegetable and Animal Oil and Fat Industry in Indonesia

Research Aims: This study investigates the price-cost margin (PCM) and technical efficiency (TE) of firms and sub-industry in the Indonesian vegetable and animal oil and fat industry in the period of 2000-2019. This study aims to analyze how technical efficiency changes over time and examine the relationship between PCM and TE in the Indonesian vegetable and animal oil and fat industry. Design/methodology/approach: This study utilizes data from the Klasifikasi Baku Lapangan Usaha Indonesia (KBLI) for the vegetable and animal oil and fat industry (ISIC 104), focusing on the five firms with the largest output each year. To estimate technical efficiency (TE), this study used a bootstrapping approach in conjunction with data envelopment analysis (DEA). In addition, a cross-sectional regression model was used to investigate the relationship between technical efficiency (TE) and price-cost margin (PCM). Research Findings: According to this analysis, the industry may have tended toward larger markups and decreased TE between 2000 and 2019. The price-cost margin and technical efficiency in the Indonesian vegetable and animal oil and fat industry are found to be positively correlated in this study. However, the long-term sustainability of this relationship remains uncertain, as rising market power may reduce competition and lead to inefficiencies. Policymakers should consider regulatory interventions to balance market power while promoting industry-wide efficiency improvements. Theoretical Contribution/Originality: While previous studies have examined PCM and TE across various sectors, none have specifically focused on the Indonesian vegetable and animal oil and fat industry as classified under the Klasifikasi Baku Lapangan Usaha Indonesia (KBLI) for ISIC 104.