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BEHAVIORAL APPROACH TO THE ANALYSIS OF COMPETATIVE SITUATION IN PRODUCT MARKETS

Sergey Chirikhin

Abstract

The article critically analyzes the established, generally accepted approaches to study a state of competition based on market concentration index. These indicators have such obvious advantages as relative simplicity of their determining and comprehensible interpretation of the content. However, they also have some fundamental drawbacks as follows: the use of stringent, frequently unreasonable threshold values for obtaining final research findings about the state of competition in any commodities market, the inability to assess the evidence of cartel activity and significant barriers to market entry or exit and etc. These limitations complicate the effective usage of these indicators and can even lead to completely wrong conclusions. For example, experience shows that spontaneous, not determined price increases occur in both highly and low concentrated markets. In order to improve the effectiveness of procedures for identifying a state of competition in commodities markets, the author proposes to use indicators, based on the degree of rivalry among sellers for buyers. This degree of rivalry affects buyersВ’ behavior, namely that leads to increases in frequency of switches from one seller to another while making purchases when the competition among sellers is strong, or decreases in frequency of switches when the competition is weak. There can be a number of reasons for buyers to change vendors, as the best prices, quality, service and after-sales service provided, information interaction (including more successful advertising), etc., as well as the best combination of these factors from the customersВ’ point of view. One of the indicators to characterize the number of buyersВ’ switches as a result of competition among sellers can be a share of situations of choosing a new seller in the aggregate number of purchases. To validate the proposed indicator, the author has used it to calculate a state of competition in a dwelling services market in a few Russian cities and has come to a result that the competition there occurs to be very weak. At the same time, indicators based on the market concentration index give exactly the opposite result, showing a very low concentration in the market and, therefore, a high degree of competition. However, expert assessments clearly confirm the results of the author's approach, because the markets under review are characterized by the high prices and poor quality of service provided, low innovation levels and other signs of weak competition.

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