Table of contents list of acronyms
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- 5. PROTECTION
| 4. COMPETITION The Herfindahl–Hirshman Index, HHI, is a measure of competition in any particular segment of a market or any particular product. The lower the value of the index, the greater is the competition. For most market regulators, including the CCP, the threshold is considered to bean index value of 1800. The only competition visible in the sector is for the motorcycle manufactures where the HHI is substantially below the threshold. Toyota car sales account for 67 percent of the market in the large car category – population of three makes only. This segment has a HHI value of 4728, well above the threshold level of 1800. In the cc category of cars, Suzuki dominates the market, leading to a HHI of as high as 9090. In the cc category, there are two car manufacturers and the HHI is also high at Further, market shares of individual manufacturers have not changed substantially overtime. Also, there has been very limited entry into the car market. Nissan and Kia did enter in the cc – cc group earlier but have since ceased production. There is evidence of lack of innovation in terms of changes in models, quick availability, fuel efficiency, increase in user efficiency and cost cutting. A key indicator of the lack of competition is late deliveries, high premium payments even in the presence of substantial excess capacity, prices proximate to each other, advance deposits and under the table deals for accelerating deliveries. The high prices of cars is demonstrated by the high ratio of prices to average household income, which places Pakistan in the lowest decile of countries in terms of affordability of cars. Some competition was introduced through easing the entry of new investors by the removal of the requirement for obtaining manufacturing licenses, imports at concessionary duty rates and accelerated depreciation. However, this has been negated by the definition of new entrant. Further, import of used and reconditioned vehicles has been liberalized, but only under gift, personal baggage schemes and transfer of residence (which is grossly abused, but this policy has been revised year-to-year, especially with regard to provisions for depreciation. 6 As a consequence cartelisation in parts of the automotive sector is indicated. The CCP may wish to investigate the sector, particularly the cars segment in the greater public interest. 5. PROTECTION Effective protection is high and imports are governed by non-tariff barriers in addition to high rates of duty. The conclusions emerging from the ERP estimates based on two assumptions (one, tariffs are effective in determining domestic prices, and two, domestic prices are 90% of world price + tariffs)are: i) If domestic prices fully reflect tariffs, then the ERPs are generally high. They range from 98 percent for small cars (cc) to as high as 374 percent for large cars (above cc. This is a reflection of the very high customs duty of 75 percent on large cars. The ERPs comedown sharply to between 35 percent and 113 percent for cars with the second set of assumptions. ii) The ERP on parts ranges from 32 percent to 78 percent depending upon the particular set of assumptions. iii) The ERP on motorcycles is extremely high at 196 percent under the first set of assumptions and falls to 76 percent if in the presence of intensive competition in this market the domestic price remains somewhat below the world price plus tariff. iv) In the case of trucks there appears to be a large differential between the ERPs for small and large vehicles respectively. Download 0.77 Mb. Share with your friends:
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