Competition policy implementation in Armenia

Abstract

From the general economics and competition theories, it is assumed that the higher rate of competition leads to the higher total social welfare. High social welfare usually is associated with efficient allocation of resources, low prices, and high output rates. “Broadly defined, competition in market-based economies refers to situation in which firms or sellers independently strive for buyers’ patronage in order to achieve a particular business objective, for example, profits, sales, or market share”[1, p.1]. Competition forces firms to become efficient and to offer a greater choice of products and services at lower prices. Decentralized decision-making by firms promotes efficient allocation of society’s scare resources, increases consumer welfare, and gives rise to dynamic efficiency in the form of innovation, technological change, and progress in the economy as whole. A lot of studies and researches were implemented to reveal the competition and industry dynamics relationships. For example, different competition indicators were opposed to the output (revenue) or employment growth. Although in other areas of private sector development several researches have been done in Armenia, the researches on competition policy related issues are missing. Nevertheless, we will try to fill partially this gap and to be the pioneers in this type of analysis by observing the competition and industry dynamics relationships. Broadly speaking, the purpose of this research is to reveal the relationship between industry concentration and industry dynamics. Firstly, Herfindhal-Hirschman Index (HHI) (see Step 6) is taken as a concentration measure and an attempt would be made to calculate it for different (selected) Armenian industries. Then, the regression analysis of the relationship of HHI and the industry dynamics (Which is the change in the number of employees and the change in the output for he selected sector in the period of 1997-1998) will be carried out. The core objective of this paper comes to issue of HHI calculation, precisely, assignment of the market shares to the enterprises, which is a pretty difficult issue. We have restricted our research by competitive products which are defined as “those for which there is resident industry and which may therefore be produced either by resident products or imported”[8, p.366]. No complementary products – “those for which no resident industry exists and are available only from imports” [8, p.366] – were not taken into account, in other to find a correlation of the level of concentration and output and employment, which could be explained only by residential activities. Another restriction should also be considered. In the research industries are classified on the basis of International Standard Industrial Classification (ISIC), see Table 1, Appendix A, rather than product classifications, such as Central Product Classification (CPC). Product based classification provides more reliable results, however it is almost impossible to find product specific data. Chapter 1 deals with HHI calculation, precisely we will estimate 2 types: autarky HHI and open market HHI. In Chapter 2 we will derive and analysis the regression between indices and industry dynamics. Appendix A and B is complied with statistical tables sand charts. The statistics and graphs on regression are presented in the Appendix C. The Economics of Competition Policy is briefly discussed in the Appendix D.