REFERRING ESTIMATION OF ECONOMIC ENVIRONMENT IN MARKETS

By. Lali Vardishvili

Competitive environment is a necessary condition for the normal functioning of all countries. During the social (planned) economy competition was regarded as a harmful phenomenon. At that time, works about market issues were not published in economic literature.

Progressive Soviet as well as Georgian economists considered that it was necessary to use market methods for the development of national economy and avoidance of trade deficit. Yet these considerations oppose the planned system of economy. During the planned economy, economic science, principally, considered issues that were connected with concentration of production, but not with any competition in trade market. The following indices are designed to determine the level of concentration:
– Production share of different enterprises (main index);
– Number of workers
– Cost of main production funds;
– Power installation capacity;
– Energy power consumption.
During the planned economy, concentration of production promoting the establishment of industrial giants was viewed as a positive phenomenon that produced dimensions effect. The planned system of concentration and lack of competitive struggle was added to the advantages of concentration. Negative consequences of concentration – ecology, transportation costs of raw materials, etc were ignored.
In transition to market economy that is based on competition there arose a necessity for the development of criteria designed to estimate the competitive environment on the basis of marketing approach. It is necessary for the analysis and development of trade markets and restriction of monopoly.
Economy has lately been paying more attention to the issues of branch markets than to different trade markets. Traditional approach did not imply involvement of other participants – suppliers of goods for the given market from other regions. During the analysis of markets, alternative goods were not always taken into consideration. Their production was even considered inexpedient during the market economy. Naturally, enough, the customers had no alternative because production was produced and distributed by means of directive method.
Nowadays, it is important to pursue an economic regulation policy in Georgia that will increase competitiveness of local goods and promote creation of favourable conditions for domestic producers, i.e. make for the development of civilized competition.
Economic environment in trade market largely depends on many factors. There is no such notion as “average” or “typical” branches. There can not be two similar branches. There are not also any “average” and “typical” markets. That is why it is impossible to make a typical model of estimating competition for all trade markets.
In estimating competition in trade markets, it is necessary to take into account all factors by means of marketing. Factors without qualitative indices can be estimated subjectively. Significance of different factors must also be taken into account.
F.e. there are many sellers and buyers in consumer market (retail market). The number of buyers in the market of industrial production is small; they are, mainly, concentrated in particular places. Each market is characterized by peculiarities that are to be taken into account.
During the analysis of trade markets, subjects of market (sellers and buyers) and objects of markets (commodity, products, service). The market structure, namely, the number of firms and their share has a significant influence on competition.
The competition is significantly influenced by the structure of markets, namely, by the number of firms and their share. Lorenz curve is used for the estimation of competition in the market. It shows the rate of share (in percentage) owned by its subjects. But it is rather difficult to build it in practice. Moreover, it does not exactly reflect the position of competitive environment. The rate of market and share of economic subjects is determined for the estimation of market competition. The following indices are used:
1) Concentration rate
2) Kherfindal-Khirshman index that is computed from their sale indices.
Concentration rate is determined for 3, 6, 10, 25 (or 4, 8, 20 and 50) largest economic subjects. It is calculated as a share of several largest suppliers in the market (more often this rate is calculated for three or four largest economic subjects). Concentration rate does not take distribution of share among market participants for whom it is calculated. It is its important deficiency.
Kherfindal-Khirshman index I is calculated as a sum of squared share of all firms in the market. This index is the most adequate index of monopolization level. The more is I meaning, the more influential the company is. Maximal meaning is I when one participant equals 1000. The following criteria are used for the estimation of concentration role in countries with developed market infrastructure.
– High (I>1800, cr 4>80%);
– Moderate (1000