Industry regulation has been a long-standing focal area of analysis for scholars and practitioners alike. Due to government control over regulated industries, the industries often display a deviation from perfect competition. Consequently, regulated industries provide an opportunity for rent seeking among incumbents while making entry difficult for potential entrants. Despite the vast body of work examining firm behaviour in regulated industries, the lack of an accepted definition of regulated industries has been a surprising omission. The classification schemes provided by extant research are rather broad and ambiguous, apart from being dated.
In this paper, we attempt to overcome this lacuna by creating a new index by taking into account various regulatory parameters. We developed this index of regulated industries for two different classifications: the National Industrial Classification (NIC) and the industry classification used by CMIE’s Prowess database. We also demonstrate the usefulness of the new classification by comparing industry concentration and political connections in India across regulated and other industries. As would be expected, we find that industry concentration is higher in regulated industries, and firms in regulated industries have more politicians on their boards. While our index has been developed in the Indian context, we believe that the approach we have followed could be replicated in several other countries as well and could aid researchers, practitioners and policy makers alike.
