(DP 2016-05) Conglopolistic Competition in Small Emerging Economies: When Large and Diversified is Beautiful

Abstract

The economic catch-up of the East Asian miracle economies went hand-in-hand with the emergence and even dominance of large private or quasi-state business groups such as the Zaibatsus in the pre-WWII and the Keiretsus of the post-WWII Japan, the Chaebols of South Korea and the Taipan-led business empires of South and South East Asia. The dominance of the so-called Robber Barons in the Gilded Age of the USA catch-up era (1870-1900) was of the same genre. The natural vent for size among firms, following the Williamson make or buy logic, manifests itself as vertical integration in large economies; in small economies, it manifests itself as horizontal integration or conglomeracy. The motivations are underdeveloped factor mainly capital and insurance markets. Weak public ordering also motivates size as firms to vertically integrate into private ordering to resist official and unofficial predation. Conglopolistic competition, the competition among conglomerates in many markets, is largely in the non-traded goods sectors where foreign competition is not felt and market saturation is quickly attained. We give show how conglopolistic competition is welfare-improving and give examples of how it boosts the collective action capacity of the weak Philippine state. The dynamism of the Philippine Service sector is due to lively conglopolistic competition which in turn comes from relatively free entry (apart from large capital cost) in these sectors. It is imperative to attract conglopolistic competition in the traded goods sector especially in industrial agriculture. We identify fragmentation of farm land and the 5-hectare ownership ceiling as the one barrier preventing the entry of conglopolistic competition in agriculture.

JEL Classification: L22, L25