Welcome to my Competition definition. The study of the structure of the market, its typology is directly related to the definition of the competitive environment, its evaluation and research capacity restriction or competition.
In determining the basic types of the market definition used technique monopoly position and recommendations on the main types of markets. The total sequence of stages of the research presented in Scheme 3.7.
The study begins with the definition of goods in respect of which carried out the search of substitutes and its evaluation regarding consumer characteristics, conditions of use and conditions of sale of goods, which completes the formation of the provisional list of substitutes.
Definition of interchangeability of goods carried on the results of observations. To determine the boundaries of the commodity market can be used observational data held on customers requests, opportunities sellers (producers), price dynamics and demand (sales) on a commodity group over time.
In determining the basic types of the market definition used technique monopoly position and recommendations on the main types of markets. The total sequence of stages of the research presented in Scheme 3.7.
The study begins with the definition of goods in respect of which carried out the search of substitutes and its evaluation regarding consumer characteristics, conditions of use and conditions of sale of goods, which completes the formation of the provisional list of substitutes.
Definition of interchangeability of goods carried on the results of observations. To determine the boundaries of the commodity market can be used observational data held on customers requests, opportunities sellers (producers), price dynamics and demand (sales) on a commodity group over time.
The basis for determining commodity market boundaries is an expert assessment on customers equivalence or interchangeability of products that make up a product group. This assessment can be determined through a random survey of buyers (sellers) and information on commodity expertise.
The study should take into account that significant value is a slight, but significant price increase, since only it can determine the real substitutes. A significant increase in the price finds more distant substitutes, ie, the product market can be included too distant substitutes that lead to errors in determining the commercial boundaries of the market, in addition to buyers switching to substitute products may be difficult and it does not respond to small price changes.
To determine the boundaries of the commodity market, be aware that no significant price increase is considered less than five percent, typically for a time period not less than one year.
In commodity market boundaries interchangeable goods (goods group) is determined by factors such as the similarity of consumer characteristics and their substitutes, which can be set by comparing the physical, technical, operational, the price of the goods and their substitutes; functional substitutability of goods (goods group), which is established by comparing the purpose of consumption goods trade and its substitutes.
In an analysis should take into account the presence of barriers interchangeability, since the product has advantages over substitute in the distribution system (home delivery sales, catalogs, and so on. Al.), Or the product has advantages over substitute in terms of sales (without load of spare parts and so on. al.) and operation (providing after-sales service).
To determine the interchangeability of products can also be used information based on surveys of businesses that operate on the same market or produce substitute goods. In addition, to address the issue of interchangeability of goods can be carried out interviews with experts who possess relevant information.
In determining of substitute goods may be considered goods that are not produced for some time, but there are free capacities and has experience of production.
Territorial (geographical) boundaries of a particular product market defined by the Minimum territory, beyond which in terms of consumer purchases of goods belonging to a group of substitute goods (goods group) is impossible or impractical.
This threshold indicator to determine the territorial (geographical) boundaries of the market is five percent price change for a period of time not less than one year. In particular, if buying a particular product in one region in response to not significant, but the constant (a certain time) price increases, will buy a product in another region, then these regions are located within the same geographical market of the product. If buyers do not believe that the goods sold in the same region, replace a product that is sold in a given region, these two regions belonging to different geographic boundaries of the market with respect to this product.
For determining territorial (geographical) boundaries of the market is less able to move or demand or supply.
To determine the state of competition in the market in the world practice uses several indicators, closely related, market concentration ratio (SC); Index of market concentration Herfindahl-Hirschman Index (ESI); degree (level) monopolization of the market; Linda index; Lerner index (IL)
The coefficient of market concentration (IC) is calculated as a percentage of net sales (sales) of certain goods meaningful entities (sellers) to total market as follows:
10
where: Q1 sales of a certain product and the meaningful entity;
Qpm - total sales of the product in the market volume.
To analyze the market using the concentration of three (five, seven) important undertakings (CR-3, CR-5, CR-7). The disadvantage of this indicator is the lack of consideration of all businesses operating in this market because market analysis can be an important number of businesses, which is the rest of the market of the product. In addition, a significant impact on the market structure has an opportunity against "outsiders" significant market power of the market, which could occur in certain market structure.
To overcome this deficiency allows the use of an index of market concentration Herfindahl-Hirschman Index (ESI), which takes into account the total number of businesses operating in this market.
Index of market concentration Herfindahl-Hirschman shows that certain market share occupied by smaller entities. ESI is calculated as the sum of squares of shares (stated in percentage) of each of the entities that operate in the commodity market, as follows:
9
where: Pi - market share and the second entity;
n - the number of businesses operating in this market.
Indicators to assess market concentration degree of monopolization of the market. The total Chaska monopolies on the same market determine the degree (level) monopolization of the market and are calculated as follows:
11
where: (Rm) i - market share in percentage terms and the first entity that holds a monopoly on the market;
- the number of monopolies in the market.
The use of these factors in the practice of antitrust authorities is given in annex the analysis of the market of grain and sunflower.
"Blurred oligopoly" - 6-7 business entities cover 70-80 percent of the market.
To assess the competitive environment in the market should also make comparisons meaningful market shares in the entities, which is done using index Linda (L). It is given by:
8
where: k - the number of important entities;
Qt - the ratio between the average market shares and businesses and «r + 1" entities;
and - the number of the leading entities of "k" relevant entities;
k - the number of significant entities.
12
where: A - the total market share, attributable to "and" entities;
Ak - market share, attributable to the "/ d" significant entities.
Linda index is used to analyze the competitive environment in the market as an oligopoly and the definition of "limit" oligopoly.
To do this, entities that have significant market share is decreasing list of parameter P - part of the market that is subject to the conditions: R.> R. +1 (R. - market share and second sub' facility management).
Calculated index Linda (L) for r = 2, C = 3 and so on. E., Provided Lk> Lk + 1 to show results Lk <Lh + 1, ie until the discontinuity decrease in L.
"Limit" oligopoly is established when reached minimum value compared to L. This means that the oligopoly created «k» first significant entities that have the largest part of the market.
Assay values «ft» determines the type of oligopoly:
"Zhorstkaolihopoliya" - in the market prevailing 2-3 entities;
"Blurred oligopoly" - 6-7 business entities cover 70-80 percent of the market.
The study should take into account that significant value is a slight, but significant price increase, since only it can determine the real substitutes. A significant increase in the price finds more distant substitutes, ie, the product market can be included too distant substitutes that lead to errors in determining the commercial boundaries of the market, in addition to buyers switching to substitute products may be difficult and it does not respond to small price changes.
To determine the boundaries of the commodity market, be aware that no significant price increase is considered less than five percent, typically for a time period not less than one year.
In commodity market boundaries interchangeable goods (goods group) is determined by factors such as the similarity of consumer characteristics and their substitutes, which can be set by comparing the physical, technical, operational, the price of the goods and their substitutes; functional substitutability of goods (goods group), which is established by comparing the purpose of consumption goods trade and its substitutes.
In an analysis should take into account the presence of barriers interchangeability, since the product has advantages over substitute in the distribution system (home delivery sales, catalogs, and so on. Al.), Or the product has advantages over substitute in terms of sales (without load of spare parts and so on. al.) and operation (providing after-sales service).
To determine the interchangeability of products can also be used information based on surveys of businesses that operate on the same market or produce substitute goods. In addition, to address the issue of interchangeability of goods can be carried out interviews with experts who possess relevant information.
In determining of substitute goods may be considered goods that are not produced for some time, but there are free capacities and has experience of production.
Territorial (geographical) boundaries of a particular product market defined by the Minimum territory, beyond which in terms of consumer purchases of goods belonging to a group of substitute goods (goods group) is impossible or impractical.
This threshold indicator to determine the territorial (geographical) boundaries of the market is five percent price change for a period of time not less than one year. In particular, if buying a particular product in one region in response to not significant, but the constant (a certain time) price increases, will buy a product in another region, then these regions are located within the same geographical market of the product. If buyers do not believe that the goods sold in the same region, replace a product that is sold in a given region, these two regions belonging to different geographic boundaries of the market with respect to this product.
For determining territorial (geographical) boundaries of the market is less able to move or demand or supply.
To determine the state of competition in the market in the world practice uses several indicators, closely related, market concentration ratio (SC); Index of market concentration Herfindahl-Hirschman Index (ESI); degree (level) monopolization of the market; Linda index; Lerner index (IL)
The coefficient of market concentration (IC) is calculated as a percentage of net sales (sales) of certain goods meaningful entities (sellers) to total market as follows:
10
where: Q1 sales of a certain product and the meaningful entity;
Qpm - total sales of the product in the market volume.
To analyze the market using the concentration of three (five, seven) important undertakings (CR-3, CR-5, CR-7). The disadvantage of this indicator is the lack of consideration of all businesses operating in this market because market analysis can be an important number of businesses, which is the rest of the market of the product. In addition, a significant impact on the market structure has an opportunity against "outsiders" significant market power of the market, which could occur in certain market structure.
To overcome this deficiency allows the use of an index of market concentration Herfindahl-Hirschman Index (ESI), which takes into account the total number of businesses operating in this market.
Index of market concentration Herfindahl-Hirschman shows that certain market share occupied by smaller entities. ESI is calculated as the sum of squares of shares (stated in percentage) of each of the entities that operate in the commodity market, as follows:
9
where: Pi - market share and the second entity;
n - the number of businesses operating in this market.
Indicators to assess market concentration degree of monopolization of the market. The total Chaska monopolies on the same market determine the degree (level) monopolization of the market and are calculated as follows:
11
where: (Rm) i - market share in percentage terms and the first entity that holds a monopoly on the market;
- the number of monopolies in the market.
The use of these factors in the practice of antitrust authorities is given in annex the analysis of the market of grain and sunflower.
"Blurred oligopoly" - 6-7 business entities cover 70-80 percent of the market.
To assess the competitive environment in the market should also make comparisons meaningful market shares in the entities, which is done using index Linda (L). It is given by:
8
where: k - the number of important entities;
Qt - the ratio between the average market shares and businesses and «r + 1" entities;
and - the number of the leading entities of "k" relevant entities;
k - the number of significant entities.
12
where: A - the total market share, attributable to "and" entities;
Ak - market share, attributable to the "/ d" significant entities.
Linda index is used to analyze the competitive environment in the market as an oligopoly and the definition of "limit" oligopoly.
To do this, entities that have significant market share is decreasing list of parameter P - part of the market that is subject to the conditions: R.> R. +1 (R. - market share and second sub' facility management).
Calculated index Linda (L) for r = 2, C = 3 and so on. E., Provided Lk> Lk + 1 to show results Lk <Lh + 1, ie until the discontinuity decrease in L.
"Limit" oligopoly is established when reached minimum value compared to L. This means that the oligopoly created «k» first significant entities that have the largest part of the market.
Assay values «ft» determines the type of oligopoly:
"Zhorstkaolihopoliya" - in the market prevailing 2-3 entities;
"Blurred oligopoly" - 6-7 business entities cover 70-80 percent of the market.
Equally important to determine the type (model) market has substantial market power detection entity. The existence of market power does not mean the presence of anticompetitive practices but provides opportunities for intervention in the competitive process in the market and the use of their own economic power to establish obstacles (restrictions) effective competition. Therefore, to determine the market power necessary to carry out a study to identify the extent to which it meets the criterion of existence of efficient markets.
Research is, first, to identify the conditions for the existence of market power, namely the presence of high levels of market concentration; the presence of a monopoly (dominant) position of the entity (or group of entities together, if coordinated actions or horizontal integration) in the relevant market; stock insurmountable barriers (barriers) to entry into the market for a long period.
In addition, it is necessary to conduct a study to identify specific additional conditions for the existence of market power in the form of the control of the entity over the vertically related markets (resources, transport, services for sales, advertising and so on. P.) And the availability of entity-specific rights, powers and other benefits provided by state bodies, local authorities or bodies of administrative management and control.
One method of assessment of market power is to determine the degree of excess of price over marginal cost, which is determined by the Lerner index formula:
Lerner Index is zero (IL = 0) under perfect competition (C = GV). IL> 0 indicates the presence of market power, and the amount of deviation from "0" to evaluate its degree.
In practice, to make the definition of marginal costs is very difficult. Therefore, to determine the Lerner index suggests that in the long run marginal cost equals average cost per unit of the entity holding the monopoly (dominant) position in this market.
In addition, the Lerner index - static figure, which does not assess the impact of market power in the competitive environment.
Market power is related to the ability to influence the entity profitably on price, quality, advertising, new technologies and so on. N. And is aimed at elimination, restriction or distortion of competition.
For the market power necessary to carry out a comparative analysis of the financial and economic activity of the entity that investigates and analysis of the financial and economic performance of competitors and their dependence on changes of the purpose it is the entity's activities including pricing, quality, investment, etc. p.
Signs of market power are: the ability of an entity that is not the only manufacturer of the product, to dictate terms in the sale of goods (goods group) enter into contracts to supply, consumer impose unfavorable conditions; or by monopolizing the market supply of inputs to restrict competition, crowd out the market other businesses that produce the goods (commodity groups) with the use of production resources, or create barriers for entry into the market.
In addition, the ability of the entity to reduce or limit the release of goods in order to obtain unilateral advantage in buying or selling goods at the conclusion of contracts and supply agreements and with other entities that are its competitors are not able to compensate formed shortage of goods, which also shows signs of market power.
Determining the type (model) market is by analyzing the performance of the market structure.
Analysis of the structure of the market is to determine the quantitative and qualitative indicators characterizing the structure of the market. Quantitative indicators include the market volume of goods; share undertakings on the market; the level of market concentration; other quantitative indicators. By quality indicators include: market entry barriers for potential competitors, the extent (the ability) to overcome them; barriers to market exit of existing competitors, the extent (the ability) to overcome them; open market for inter-regional and international trade; the presence of market power; assessment of the competitive environment in the market, its development potential and providing opinions about whether the implementation of measures to promote competition.
Based on quantitative and qualitative indicators defined types (models) market, which is differentiated by the characteristic features depending on the number of undertakings and their shares in the market, the type of product, the presence and extent of overcoming barriers to market entry and so on. P. they are perfect competition; exclusive competition, oligopoly, and monopoly.
The last three models of the market: monopolistic competition, oligopoly, and monopoly in a certain way are "imperfect" competition.
Using the results of studies and indicators to determine the type (model) market (market situation), to which the market is rather arbitrary.
To market situation of perfect competition can be attributed (just about) market where a large number of independent entities that have a small difference in the number of particles in the market and thus potential competitors can easily enter this commodity market. The value concentration ratio should vary:
Index of market concentration Herfindahl-Hirschman Index - ERI <1000;
market concentration ratio - CR (3) <45;
Lerner index - IL = 0.
The market situation outside of monopolistic competition similar to the perfect competition, but this situation is also characteristic elements of absolute monopoly. The market has a large number of businesses that have small parts, each of which offers varieties of the same product, in addition, small, easily surmountable level of entry barriers to the market. The main differences of the market with monopolistic competition on the markets of perfect competition and monopoly are absolute, primarily in the behavior of each entity in pricing, that is, when each of the entities slightly affects the price level that can exceed competitive "fair" price in case of perfect competition and be below the market level in absolute monopoly. The value concentration ratio should vary:
Index of market concentration Herfindahl-Hirschman - 1000 <ESI <2000;
market concentration ratio - 45 <CR (3) <70;
Lerner index - IL> 0.
Oligopoly - the most common market structure and unlike sufficiently defined market structures that were previously presented, covering different types of market conditions. A simplified model based on structural oligopoly market indicators can be defined as "a collective monopoly" or limited competition. Market under research can be attributed to the type of market "oligopoly" if the results of the study determined the existence of this market a small number of large interconnected entities.
Examples of oligopolistic market group monopoly in Ukraine can serve as a national market gasoline and diesel fuel, where three large company - JSC "Ukrtatnafta" of "Linos" and JSC Lukoil Odessa Refinery held a monopoly position with a share of 66% in motor gasoline and 51% - for diesel fuel in 2004.
To determine the type of oligopoly calculations used the index, Linda. So when 6-7 entities cover 70-80 percent of the market, we have a "vague oligopoly"; when the market prevail 2-3 entities - a "tight oligopoly."
Value indices of concentration for these cases is: the index of market concentration Herfindalya- Hirschman - 2000 <ESI <7000; market concentration ratio - 70 <CR (C) <100; Lerner index - IL> 0; degree (level) monopolization of the market - MR = 35 - 100.
The market, which operates one seller and there are insurmountable barriers is of type absolute market monopoly. A variation of this market is a market in which there is an entity that holds a monopoly position. In this case, depending on the level of market power, the existence of direct competition from the peripheral of the market values of concentration within the index of market concentration Herfindahl-Hirschman - 7000 <ESI <10 000; market concentration ratio - CR (1) = 100; Lerner index - IL> 0.
Research of the concrete commodity markets and the right conclusions about the type of market allow effective monitoring of competition in the market in a timely manner to prevent monopolization and stop the violation of competition law.
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