Sunday, 26 April 2015

Competition and changes in prices and sales in Burundi

 When there is more competition in a market, companies may expect to see falling sales or at least slower increases in sales, as rivals take some of their business over.  Burundian businesses reported in a 2006 survey the number of competitors for their main product.  They also stated whether they had seen the sales of the product increase, remain the same, or decrease.  We summarise their reports in the table:

When there were no competitors, many companies (67 percent of them) had increased sales but a significant minority also had reduced sales.  I think that if a company has a monopoly, they won't want to make too many changes to their market (since things are good for them already), so they won't change things dramatically on average.

When there was one competitor, sales were generally up.  This is believable; two competitors were competing for a market and could divide it up between them.  As the number of competitors increased, the sales growth became less frequent, which is also believable - the competitors were dividing up a market into many shares.

Companies also reported how the prices of their main good had changed, with the summary shown in the table.

 The monopolists didn't show much change, as expected.  The companies with one rival often increased their prices, but a relatively large proportion decreased their prices.  The story here could be that there can be fierce price competition between two oligopolists.  When there were two to five rivals, prices often increased, and frequently stayed the same.  When there were six or more competitors, prices usually increased.  I find it surprising that when there were more competitors, the company often increased its prices.  What may be happening is that the company stopped competing for the general market, and started focussing on a niche where it had more monopolistic power and could increase prices.  I'm not sure, and will check out company behaviour in Africa more generally.

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