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Distributional Effects of Competition : A Simulation Approach

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  • Rodriguez Castelan,Carlos
  • Araar,Abdelkrim
  • Malasquez Carbonel,Eduardo Alonso
  • Olivieri,Sergio Daniel
  • Vishwanath,Tara

Abstract

Understanding the economic and social effects of the recent global trends of rising market concentration and market power has become a policy priority, particularly in developing countries where markets are often more concentrated. In this context, since the poor are typically the most affected by lack of competition, new analytical tools to assess the distributional effects of variations in market concentration in a rapid and cost-efficient manner are required. To fill this knowledge gap, this paper introduces a simple simulation method, the Welfare and Competition tool (WELCOM), to estimate with minimum data requirements the direct distributional effects of market concentration through the price channel. Using this simple yet novel tool, this paper also illustrates the simulated distributional effects of reducing concentration in two markets in Mexico that are known for their high level of concentration: mobile telecommunications and corn products. The results show that increasing competition from four to 12 firms in the mobile telecommunications industry and reducing the market share of the oligopoly in corn products from 31.2 percent to 7.8 percent would achieve a combined reduction of 0.8 percentage points in the poverty headcount as well as a decline of 0.32 points in the Gini coefficient.

Suggested Citation

  • Rodriguez Castelan,Carlos & Araar,Abdelkrim & Malasquez Carbonel,Eduardo Alonso & Olivieri,Sergio Daniel & Vishwanath,Tara, 2019. "Distributional Effects of Competition : A Simulation Approach," Policy Research Working Paper Series 8838, The World Bank.
    • Handle: RePEc:wbk:wbrwps:8838
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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