RIGA - A pioneering study of the Baltic states' grocery market shows that competition in the industry is on level with West European nations and stiffer than that in Central and East European countries.
The study, released last week by the Baltic International Centre for Economic Policy Studies, found that the grocery market varies from country to country in the Baltics and that while competition is stiff, the level of concentration of top market players requires "a need for vigilance by the competition authorities."
As the authors point out in the introduction, there is currently "very little hard evidence of the state of competition" in the Baltic grocery market. In recent years numerous articles have appeared in the mass media indicating abuse of market position by the dominant players in relation to distributors, leading to calls for a sweeping investigation by competition authorities. Still, there has not been an honest attempt to qualify, and quantify, such claims.
With this in mind, BICEPS attempted to "assess the degree of market concentration across the Baltic states and to make some comparisons with other European countries." But as the authors highlight, even pinpointing the best methodology for such a task is challenging. The two models mentioned in the report 's the neoclassical approach (which focuses on structure and prices) and the Austrian model 's are both helpful in gauging competition, but the latter stresses innovation and product differentiation, which BICEPS admitted is beyond the scope of its report.
The neoclassical approach, by contrast, focuses on market structure "where there is a presumption that a more concentrated market is less competitive and therefore less in the public interest."
The most common yardstick of concentration, the report goes on to explain, is the Herfindahl-Hirschman Index, which is used by the U.S. Department of Justice. Markets with an HHI of less than 1,000 are competitive, those between 1,000 's 1,800 are concentrated, while markets with an HHI of more than 1,800 are highly concentrated.
How do the Baltics measure up? According to BICEPS, Latvia has the lowest level of concentration 's hence, the most competitive playing field 's in the Baltics with an HHI of 963, while Estonia's indicator is 1,510 and Lithuania's is 1,869, which would indicate considerable concentration.
"The very high level of concentration in Lithuania is most explained by the particularly high market share of its largest retailer, VP Market," the report states. Indeed, the concentration ratio 's share of the four largest grocers in a given country 's in Lithuania is "one of the highest in Europe," the study concludes.
Indeed, if this week's news about an imminent takeover of Iki stores by Rimi Lithuania proves prescient, the Lithuanian market could see an even higher rate of concentration in 2007. (BICEPS' ratios are based on 2005 data.)
Then again, as the report highlights in its conclusion, concentration throughout the grocery segment has been steadily increasing over recent years.
Transparency in the industry, for instance, is still wanting. As the report pointed out, Baltic grocers frown upon systematic price comparisons, and one author was asked to leave a store while writing down prices.
"This practice, unknown in most of Western Europe, severely hampers the market economy, since information about prices is one of the foundations of a well functioning market," the report states.