Sources of Market Power among Firms in Sub-Saharan Africa: Do Institutions Matter in Competitive Policies?

Abstract

In the context of a high prevalence of both poverty among households and business failures among firms in the majority of Sub-Saharan African (SSA) countries, competition is seen as one of the viable tools for transforming and improving these economies. This can be achieved by boosting productivity, improving output markets, increasing innovation and promoting economic growth. This study examines the sources of market power among firms within a variety of institutional settings using a large sample of data from 23 SSA countries. Tobit panel models comprising both fixed and random effects are used to estimate the determinants of market power. The study reveals that a large number of firms control less than 5 percent of the market with a few firms controlling between 5 and 34 percent of the market. At the same time, there are a small number of firms controlling between 30 and 100 percent of the markets in Sub-Saharan Africa. The findings further show that economic and political institutions significantly matter in the determination of power among firms in SSA. However, the influence of institutions varies significantly depending on the type of institutions and regional differences.