Imperfect competition and asymmetric welfare effects of global price and productivity shocks: a CGE model analysis for Senegal

Abstract

This article investigates the asymmetric effects of global price and productivity shocks on welfare in the context of imperfect competition. The primary objective is to understand how market concentration affects the transmission of economic shocks and their impacts on various households. A CGE model, calibrated on a 2014 social accounting matrix for Senegal, is used. The model features a trading sector operating under a Cournot oligopoly with increasing returns to scale. Two scenarios are simulated: a 15% increase in global import prices and a 10% increase in agricultural productivity, each considering different levels of market concentration. The findings reveal that higher global import prices reduce household well-being, a situation exacerbated by low market competition. In contrast, agricultural productivity gains enhance well-being, with these benefits amplified by greater competition. However, the wealthiest households in Dakar benefit from low competition due to their positions in oligopolistic companies. To maximize household well-being, economic policies should focus on strengthening market competition, particularly in the trading sector. Actions such as reducing entry barriers for new businesses and regulating anti-competitive practices can help mitigate the adverse effects of global price increases and amplify the benefits of agricultural productivity gains.