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

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. This study examines the asymmetric welfare effects of global price and productivity shocks in the context of imperfect competition, using a computable general equilibrium (CGE) model for Senegal. Our findings reveal that increased market concentration amplifies the adverse effects of global import price hikes while dampening the benefits of agricultural productivity gains, with significant distributional consequences. In particular, low market competition disproportionately benefits the wealthiest households in Dakar while exacerbating welfare losses for other groups. These insights underscore the critical role of competitive market structures in mitigating economic shocks and enhancing household well-being. The study provides valuable policy implications, highlighting the need for pro-competition policies such as reducing entry barriers and regulating anti-competitive practices in the trading sector. Strengthening market competition can help shield consumers from external price shocks and ensure broader welfare gains from productivity improvements.