The Myth of Monopoly: A New View of Industrial Structure in Russia*

Abstract

Discussions of economic reform in the Russian Federation are colored by the conventional view of Russian industrial structure. This view, held both in Russia and in the west, is that Russian industry is characterized by very large enterprises operating in highly concentrated industries. In this paper, we challenge the conventional wisdom. We estimate Russian industrial concentration by examining the 1989 Soviet Census of Industry, and by comparing the Russian industrial structure to that in the United States and other countries. We find that very large firms are more prevalent in the United States than in Russia. Our analysis suggests that planners economized on the costs of central economic coordination, not by building unusually large enterprises, but by not building very small enterprises. Because innovation was centrally directed, small firms did not play the role they play in a market economy, and thus industry evolved under a completely different process of economic selection. Our most important finding is that there is little aggregate or industry concentration at the national level in Russia. Monopolies and oligopolies actually account for a very small share of national employment and production. Our analysis suggests instead that the barriers to competition in Russia arise as the result of product markets that are highly segmented. In large part, this segmentation can be viewed as a legacy of the system of central planning. Nevertheless, some features of the transition environment continue to undermine the efficient distribution of goods, reinforcing these barriers. Based on our finding, we conclude that the traditional policy remedies appropriate for problems of concentration, such as anti-trust policy and import competition, may be ill-advised or inadequate for addressing problems of imperfect competition in the economy. We argue instead that improving the distribution system and facilitating the entry of new firms are the most critical elements of competition policy in Russia. JEL Classification Number: L11, P21, P31.

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