Market power can lead to inefficient resource allocation, rising inequality and the undermining of democratic institutions. Highly concentrated markets are typically established in contexts where new entrants face high expected cost of entry. This risk is particularly relevant to the context of many low-income countries in which capital is rare, public infrastructure is under-provided, weak institutions facilitate state capture by market incumbents, and reliable market information, particularly for potential international competitors, is scarce. Comparatively little is known about market concentration and market power in lower-income countries, largely due to the lack of relevant administrative data.
This project will build a unique panel dataset of the universe of formal Senegalese firms from 2007 to 2020 by amalgamating several administrative databases from the tax authority, the public procurement authority and the custom office. This data will make it possible to precisely depict the market structure of the formal sector, to track the evolution of firms’ performance, to estimate markups and the level of market concentration, and eventually to detect possible signs of rent extraction. Following the assembly of this dataset, the researchers will measure the impact of the nationwide 45% increase in the minimum wage introduced in June 2018 and test whether the most concentrated markets depart from competitive equilibrium prices.
The project will provide valuable insights about the Senegalese market structure. Based on the results, competition regulating agencies will be better placed to scrutinise specific sectors to deter non-competitive practices and to adjust merger and acquisition recommendations. The project will also help the Senegalese public procurement agency better bargain with firms in dominant market positions. In addition, the novel dataset will identify sectors in which new entrants are most needed to foster competition in Senegal. The project will also benefit policymakers designing minimum wage policies by providing estimates of the impact of the recent reform on employment and wages while also highlighting the utility of setting minimum wage increases on a sectoral basis so as to force overly successful dominant actors to divest a larger share of their profits for the benefit of low-paid workers. Finally, the creation and consolidation of the database is of high value to the Senegalese Tax Authority as it will offer better harmonised and more reliable sectorial and geographical data.
