{"id":792,"date":"2002-01-08T15:54:03","date_gmt":"2002-01-08T11:54:03","guid":{"rendered":"http:\/\/geoeconomics.ge\/en\/?p=792"},"modified":"2013-03-08T15:54:23","modified_gmt":"2013-03-08T11:54:23","slug":"referring-estimation-of-economic-environment-in-markets","status":"publish","type":"post","link":"http:\/\/geoeconomics.ge\/en\/?p=792","title":{"rendered":"REFERRING ESTIMATION OF ECONOMIC ENVIRONMENT IN MARKETS"},"content":{"rendered":"<p><strong>By. Lali Vardishvili <\/strong><\/p>\n<p>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. <!--more--><\/p>\n<p>      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:<br \/>\n      &#8211; Production share of different enterprises (main index);<br \/>\n      &#8211; Number of workers<br \/>\n      &#8211; Cost of main production funds;<br \/>\n      &#8211; Power installation capacity;<br \/>\n      &#8211; Energy power consumption.<br \/>\n      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 &#8211; ecology, transportation costs of raw materials, etc were ignored.<br \/>\n      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.<br \/>\n      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 &#8211; 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.<br \/>\n      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.<br \/>\n      Economic environment in trade market largely depends on many factors. There is no such notion as &#8220;average&#8221; or &#8220;typical&#8221; branches. There can not be two similar branches. There are not also any &#8220;average&#8221; and &#8220;typical&#8221; markets. That is why it is impossible to make a typical model of estimating competition for all trade markets.<br \/>\n      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.<br \/>\n      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.<br \/>\n      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.<br \/>\n      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:<br \/>\n      1) Concentration rate<br \/>\n      2) Kherfindal-Khirshman index that is computed from their sale indices.<br \/>\n      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.<br \/>\n      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.<br \/>\n      &#8211; High (I>1800, cr 4>80%);<br \/>\n      &#8211; Moderate (1000<I <1800,45<cr 4<80%); \n      - Weak (I<1000, cr 4<45%). \n      - The following indices can add to the picture of market competition: \n      1) Share of large economic subjects (in accordance with the quality of the employed and cost of main production funds) in the total number of all economic subjects functioning in a concrete market. \n      2) Potential competition - possibility of having new firms in the market, which is stipulated by the high probability of receiving a high economic profit. Real market entry as well as the danger of new participants' market entry is a driving force of competition that can restrict any monopoly; \n      3) Maturity of goods and market. Four stages of commodity life cycle is singled out: birth, growth, maturity and senescence. \n      The danger of competition decrease is higher in \"mature\" and \"senescent\" markets (I group) than in \"newly-born\" and \"growing\" one (II group). It is due to the fact that enterprises (firms) in market of the first group, as a rule, struggle actively for the increase of their share in market with the purpose of lowering turnover growth rate and optimal compensation of expenses. It is easier for them to penetrate into the market because large firms are not strong enough to restrict competition. \n      4) Use of market force with the purpose of restricting competition. Market force is directly connected with the % demand elasticity in other equal conditions. The more alternative goods are the less market .force suppliers (sellers) have. Market force is determined by raw materials and financial resources, use of right for production property (patents, license, branch marks), positions of economic subject in the market of other regions (i.e. world), promotion and commodity movement; \n      5) Anti-competitive behavior. Economic subjects' behaviour can in itself become a barrier for market entry. The sources of anti-competitive behaviour are: dominating position of one or several subjects of economy; vertical agreements, horizontal agreements. Firms can sometimes form cartel with the purpose of receiving maximal profit - agreement about price, production rate, market share, distribution of customers, territorial market sharing, creation of single sales structures, profit distribution. Other factors restricting competition are vertical and horizontal integration \n      6) Openness of market for international and regional trade. Liberalization of import in local market is a quick way of increasing the number of suppliers. Naturally enough, the danger of decrease in competition level is far less than in \"close\" ones. Similar production has a negative influence on market force and national companies (enterprises). On the contrary, comparative closeness of markets increases danger of monopolization and competition restriction. \n      The index of \"import penetration extent\" can be used for characterizing \"market openness\". This index is determined as a share of domestic demand that is covered at the expense of import. \n      i \n      ipe = ---------------- 100% \n      p+i-e \n      where: ipe - is an extent of import penetration \n      p - production volume of concrete production \n      i - import volume of concrete production \n      e - export volume of concrete production \n      Market \"openness\" of concrete goods is determined by the comparison of ipe index with average ipe index in this market. For example, if average index in the market exceeds 20%, it can be considered open for import. Low index indicates at the closeness of this or that sort of goods. Concentration rate, Kherfindal-Khirshman index and import penetration extent is the most important index for the estimation of competitive environment. Given the fact that estimation criteria are not yet developed other factors are estimated subjectively\n\n<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By. Lali Vardishvili Competitive environment is a necessary condition for the normal functioning of all countries. During the social (planned)<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[26],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v15.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>REFERRING ESTIMATION OF ECONOMIC ENVIRONMENT IN MARKETS - Geoeconomics<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"http:\/\/geoeconomics.ge\/en\/?p=792\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"REFERRING ESTIMATION OF ECONOMIC ENVIRONMENT IN MARKETS - Geoeconomics\" \/>\n<meta name=\"twitter:description\" content=\"By. 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