Flaws In Our Market

Imperfection lies in the market, Collective efforts needed to make it perfect.

The basic ingredients of a perfectly competitive market have not been functioning well for a long time in Bangladesh. Let us take a look at key characteristics of this kind of market(source:Investopedia):

• All firms sell identical product.
• All firms are price takers,not price influencers.
• Buyers(as well as sellers) have complete or perfect information about the product being sold and prices charged by each firm now,earlier and in the future.
• Capital resources and labor are completely mobile
• Market share does not influence price
• Firms can enter or exit the market without cost.

There is however imperfection in every market and industry and pure competitive market is an idealized state. Nevertheless, govt,consumers and industry all thrive to achieve a perfectly competitive market or at least try to get as close to such an idealized state. Now let us see how these characteristics are violated in Bangladesh.

All firms are price takers is only possible when there exists a large number of buyers and sellers. Except kitchen market, most of the markets including consumer good market consist of few firms,which influence price. That means there is not too many sellers. Industry or market where initial investment is too high does not expect large number of producers. Utility, aviation can be presented as an example. But other industries which require relatively fair investment do not see enough market players. That means a good amount of entry barrier is put in place, deterring the entry of new firms. Biased govt policy,which is prevalent in this part of the world,is behind fostering the entry barrier. Rice,soybean oil market could be an apt example. International market prices are falling and current rate tells a price around Tk 46/kilo. But it is selling at much higher rate. Reason is unknown. But if govt considers consumer interests then awarding more permits to rice importers may make an impact. In the soybean oil market, few conglomerates were allowed to operate and in the change of events they showed their colors,creating a difficult situation to deal with. Moreover, proper documentation at the wholesale level of soybean oil market is not maintained, as I mentioned here several times. Tacit support to this kind of practices by the govt in the past contributed to the anarchy in the soybean oil market.

Flawed macroeconomic policy in the past led to higher policy rate hike later,[causing] barrier to new entrants in any industry. At the same time, exit from an industry is not that easy because many lending institutions sued many firms for not paying back the credit.

Capital resources and labor are not perfectly mobile here. In the past, credit often went to the projects that were not viable and that promoted creed loyalty over merit. Moreover, unaccountable development projects by govt limited private sector's access to credit as large part of bank's money went to finance these public projects. Similarly, politically motivated thrust sectors witness destruction of productive capital. Labor engaged in these sectors ,which are not so productive. There are just few companies in the consumer good market. So workers have little choice to go elsewhere.

Lack of information persists in the market. Consumers and small producers do not get the complete picture of the production cost. Moreover, motif of harvesting an industry often leads to narrative manufacturing. This disinformation/ lack of information prevents the consumer from making right choices and small producers from taking appropriate steps. Lack of proper regulatory environment is also a reason consumers not getting complete information about an industry.

It appears that too few firms and lack of regulatory environment are the main obstacles towards a perfectly competitive market in Bangladesh. If regulatory setup functioned properly,we did not have misallocation of credit in the banks. Regular auditioning and intervention by BCC,CAB,BTRC,BERC and BSEC will let consumers know why there are few firms in the industry ,true cost of production, why firms are not paying dividends despite making profits and what the future fiscal and energy policy will be. Market is not created with perfect competition. It is the collective efforts that will lead it to perfect competition.