Distributional Effects of Competition: A Simulation Approach

32 Pages Posted: 3 May 2019

See all articles by Carlos Rodríguez-Castelán

Carlos Rodríguez-Castelán

World Bank

Abdelkrim Araar

Université Laval - Département d'Économique

Eduardo A Malasquez

World Bank

Sergio Daniel Olivieri

World Bank

Tara Vishwanath

World Bank - Economic Development Institute

Date Written: May 2, 2019

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 and Araar, Abdelkrim and Malasquez, Eduardo A and Olivieri, Sergio Daniel and Vishwanath, Tara, Distributional Effects of Competition: A Simulation Approach (May 2, 2019). World Bank Policy Research Working Paper No. 8838. Available at SSRN: https://ssrn.com/abstract=3381977

Carlos Rodriguez-Castelan (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Abdelkrim Araar

Université Laval - Département d'Économique ( email )

CREFA
Ste-Foy, Quebec 179Que G1K
Canada

Eduardo A Malasquez

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Sergio Daniel Olivieri

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Tara Vishwanath

World Bank - Economic Development Institute ( email )

1818 H Street
Washington, DC 20433
United States
202-473-1152 (Phone)

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