A composite index of competition

Abstract

The measurement of competition in a given country is an issue of great importance given the widely-held belief that competition helps allocate resources efficiently, resulting in improved consumer welfare. Competition might contribute significantly to growth and equitability in the distribution of income (Mehta, 2002). The Competition Index (CI) proposed and constructed in this paper will take into account the variables that are thought to have a bearing on the nature of competition within a country’s markets. There are various benefits that could be derived from the constructing of a CI. Such an index could gauge the extent of competition that exists within a country’s markets and for across country comparisons. If measure over time, it could indicate the extent to which a country is enhancing competition within its domestic market. Also since the index proposed here is a composite one, the individual components would give an indication as to areas of competition strengths and weaknesses.