Business groups and competition in post-Soviet transition economies: The case of Russian “agroholdings”

Business groups and competition in post-Soviet transition economies: The case of Russian... The paper questions from an Austrian perspective the hypotheses that enjoy widespread support in mainstream economics that business groups are a symptom of imperfect competition and a threat to competition with negative impacts on social welfare. For this, an Austrian theoretical framework is developed and then applied to analyze the interaction of competition and business groups regarding the case of “agroholdings” in Russia. It is maintained that the orthodox literature does not adequately account for the characteristic features of competition in the real world, and therefore may lead to wrong normative conclusions on the relation between business groups and competition. It is argued that also in transition economies for competition to function as an entrepreneurial discovery process, no perfect markets are needed but only freedom to entry and property rights security. Then there is no pattern of action, which in and of itself is inconsistent with competition. Therefore, unless there is evidence for government support, business groups must principally be seen as the result of competitive entrepreneurial discoveries. It is further argued that the only real danger of business groups for competition does not come from their ability to raise non-legal barriers to entry, but from government protection. This may either result from successful lobbying of business groups or from the preference of government officials for this particular form of business organization. Case studies evidence from business groups in Russia’s agro-food sector illustrates these arguments. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Austrian Economics Springer Journals

Business groups and competition in post-Soviet transition economies: The case of Russian “agroholdings”

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Publisher
Springer Journals
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC
Subject
Economics; Public Finance; Political Science; History of Economic Thought/Methodology
ISSN
0889-3047
eISSN
1573-7128
D.O.I.
10.1007/s11138-011-0152-6
Publisher site
See Article on Publisher Site

Abstract

The paper questions from an Austrian perspective the hypotheses that enjoy widespread support in mainstream economics that business groups are a symptom of imperfect competition and a threat to competition with negative impacts on social welfare. For this, an Austrian theoretical framework is developed and then applied to analyze the interaction of competition and business groups regarding the case of “agroholdings” in Russia. It is maintained that the orthodox literature does not adequately account for the characteristic features of competition in the real world, and therefore may lead to wrong normative conclusions on the relation between business groups and competition. It is argued that also in transition economies for competition to function as an entrepreneurial discovery process, no perfect markets are needed but only freedom to entry and property rights security. Then there is no pattern of action, which in and of itself is inconsistent with competition. Therefore, unless there is evidence for government support, business groups must principally be seen as the result of competitive entrepreneurial discoveries. It is further argued that the only real danger of business groups for competition does not come from their ability to raise non-legal barriers to entry, but from government protection. This may either result from successful lobbying of business groups or from the preference of government officials for this particular form of business organization. Case studies evidence from business groups in Russia’s agro-food sector illustrates these arguments.

Journal

The Review of Austrian EconomicsSpringer Journals

Published: May 21, 2011

References

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