The analytical team at Open Data Albania is examining the Albanian market of “Fuel and Oil”, to assess whether there is the premise for concentration of one/few operators with a dominant position in the market. To achieve this, we used budgetary market purchases (purchases paid from the State Budget) and state fuel subsidies for farmers as a sample, given that information about the companies open market sales are not public. Said information cannot be accessed even through their Financial Statements as they conduct cross-sectoral activity in multiple fields, in addition to carbohydrates. The data related solely to the fuel and oil activity, can be accessed only by the Competition Authority. To this end, we’ve used the Herfindahl-Hirschman Methodology and Index. The Index is widely used in the evaluation of economic markets to recognize and assess the risk for Dominant Positions of one or more firms in the market.
The Herfindahl-Hirschman index was created in 1945 by American economist Albert O. Hirschman and German economist Albert O. Herfindahl, to measure market concentration as a whole or a particular branch. This index is widely used, especially in cases of mergers to measure the size of the market concentration. One of the most frequent users is the Department of Justice in the United States. Competition authorities can, likewise, use it to look at market cases where there may be a tendency for dominant positions.
The calculation is done through a mathematical formula calculating the value and weight against the total, ie the share of each company in the market, squaring the market share and then summing the resulting numbers. In case there are more than 50 firms in the market, the 50 firms with the largest share are taken. This index has a range of results from 0 to 10 000 (0 is an impossible result, while 10 000 is the case when the market has only one firm, i.e. a monopoly). The result from 0 – 1 500 shows that the specific market has a high level of competitiveness, the result 1 500 to 2 500, shows that we have a moderately concentrated market and if the result is greater than 2 500, we have the case when the market is very concentrated. This means that all market power is shared among very few firms.
Source: Open Spending Albania
Comments and Analyses: Open Data Albania
Open Data Albania decided to conduct this research due to the increase in the price and profit margin of retail fuel immediately after the start of the war between Russia and Ukraine.
Assessing the share each of the companies occupies in the “Fuel and oil” market for budgetary acquisitions, from January 1st, 2019 to March 11th 2022, it is estimated that the company with the highest value has benefited of about 54.3% of the total value contracted by budgetary institutions throughout this period. Meanwhile, out of 363 beneficiary companies, 70% of the total value is distributed between four companies in this market.
Source: Open Spending Albania
Comments and Analyses: Open Data Albania
In the case of the Herfindahl-Hirschman index, it turns out that, for the category of “Fuel and oil” expenditures for the budget sector and farmer’s oil subsidies, the index dis 3066. Given that it is greater than 2500, it is a clear indication the “Fuel and oil” market, for the period in question, is highly concentrated. Therefore, in this market sector, we have companies with a dominant position. As explained, when the index approaches the value of 0, it means the market approaches a situation of full competition, whereas when it approaches the value of 10,000, it inclines towards monopoly; thus, we can conclude that, in this case, the market presents premises for concentration or monopolization.
This indicator can also serve as a good assessment of the market situation in general, as the budget sector market can be considered a representative of the whole market. The Herfindahl-Hirschman index also mathematically confirms that the “Fuel and oil” market contains firms with a dominant position, posing a high risk for market control.
Download excel: Concentration of the Hydrocarbon market in AlbaniaComments and Analysis: Open Data Albania
Contributed by: Ilir Brasha
Translated by: Rezarta Caushaj
