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Regular version of the site

Competition and concentration at the sector level

2009
Department: Laboratory of Industrial Market Studies

Part 1 of the report focuses on the study of problems of industrial markets in the Russian economy and primarily treats the peculiar nature of the Russian version of a mixed market economy and the role of non-market instruments of regulation and their impact on the sector structure.

The main objective of the present study was to determine the capabilities of the existing theory of sector structure to study the Russian version of a mixed market economy and the characteristic structure of industrial markets, to make the necessary modifications to this theory, and to establish the connection between the theory of sectoral structures formed in a post-socialist economy and the specific studies of industrial markets.

The following aims were attained in the course of the study:

1)    Identification of the principles of building formal sectoral models where public and private companies co-exist with different behavioural hypotheses, primarily for state corporations.

2)    Formal analysis of interaction between and mechanisms for enterprises of various ownership forms in these sectors.

3)    Determining the place of these models in the general theory of oligopolistic interaction (structures).

4)    Studying risk distribution for different hypotheses (options) of sectoral interaction.

5)    Efficiency analysis of sectoral structures that form as a result of this interaction and different tools for their regulation.

6)    Methods of empirical study of these structures.

Based on the results of the study, the article “Comparative Efficiency of Public and Private Ownership in Terms of Ownership Rights Theory” was published in the journal Finances and Business, No.2, 2010.

Part 2 of the report cites the results of research in the area of relative prices. Research was carried out in the following two fields:

1)     Updating results obtained in 2008

2)     Theoretical justification of price parity evaluation and elaboration of calculation methods using the example of agricultural products

1.  Updating the results obtained in 2008 to account for factors causing price deviation in a specific country from international parity.

The key result of the study was the introduction of hydrocarbon rent as a factor causing price deviation from international price parity (normal price) of goods. This holds true for all oil-exporting countries except for Denmark and Norway. The study led to the publication of two articles:

  •  “Gasoline Price as a Social Phenomenon” published in September 2009 in the journal Economic Policy
  • “Price Level as an Instrument of Price Forecasting” for the journal Forecasting. The article is an expanded version of a report delivered at the 10th EACES Bi-annual Conference, August 28-30, 2008 in Moscow, Russia. The article is currently being translated and is scheduled to be published in December 2009.

2. Using the results of the study, we have devised a methodology of price parity change, which is an alternative way of determining normal prices.

The study focused on agricultural product prices. The relevance of the study is determined by the relevance of the exchange equivalence problem (in terms of price parity) in this area. For instance, an Internet search of “price disparity” yields thousands of hits. It is important to note that price parity is also mentioned in Russian agricultural laws.

The aim of the study was to develop a methodology to analyse change in agricultural product price parity. General methodology principles were applied to wheat, potato, milk, beef, pork, chicken egg and engine oil prices.

The study treated purchasing prices paid to agricultural producers across the world. The data source was the UN Food and Agriculture Organization (FAO). Retail prices were also used whenever possible (milk and eggs).

Two databases (in terms of GDP per capita and diesel fuel prices) were formed in the previous study in 2008.

For each item, price parity was determined and deviations were calculated. The study showed that, among the aforementioned goods, pork prices are the highest compared with parity, while wheat prices are the lowest.

Using the example of protests against low purchasing milk prices, we studied the relationship between protest initiation and milk prices. The study showed that this relation is statistically meaningful: as prices decline, the degree of dependence increases, and protest frequency rises.

The results of the study were incorporated into three research memoranda:

1. Dos and don’ts for overcoming the downturn

2. On the need to constrain price growth for combating stagflation

3. An algorithm for detecting high monopolistic prices