Sunday, September 24, 2006

Market Concentration

A recent report by RFE quotes an Armenian businessman and a member of the parliament complaining about the lack of "free enterprise and fair competition in the country." This is despite the fact that Armenia is ranked as the 27th, far ahead of many countries, by the Heritage Foundation and the Wall Street Journal index of economic freedom.

The big question is how much market concentration is there in Armenia. This is important as it reflects on the degree of competition (and monopoly power) in the economy. Do we see this in the data? Has anyone done any comprehensive study, sector by sector, on how many firms there are in each sector, and their market share? I know that some are concerned about the extent of ownership and control by certain government officials, but that is a secondary question. It is more critical to explore whether the existing market structure hinders economic growth and hurts consumers.

The clearest signal of lack of competition, albeit not always perfect, is the price wedge between similar Armenian and foreign goods and services. Armentel might be a good case in point, but at least it paid in advance for this monopoly right. Another example is the government's favoring Armenian over foreign airliners (e.g., much better hours of arrival and departure). Of course, legal monopolies and the protection of domestic industries have their costs, regardless of the motivation and transparency. But other more egregious forms of market control can be far more damaging to the economy and prosperity of the country. One example is the rumored shortage of jet fuel which has allegedly caused delays and cancellations of flights earlier in the year.

So, again, the question is whether we know of any studies on market concentration. If not, is anyone out there aware of any data sources that could be explored to undertake such study?

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