Implications of Price Regulation on Market Structure of Oil Marketing Firms in Kenya

Wycliffe Kipkorir Langat, Emanuel Manyasa

Abstract


Despite a substantial growth in the sub-Saharan African region, a trend of divestment by multinational oil marketing companies has been witnessed in Kenya in the recent past. These companies have often cited stringent operating markets and pricing laws in the country which bites on their profits. The implications of price regulation whether economic or social could depend on a variety of factors, thus an empirical study was carried out to estimate the relationship between price regulation, market concentration, product differentiation and number of firms entering and exiting the industry within the study period. This explored the implications of price regulation on market structure of oil marketing firms in Kenya. An analytic study approach was used and secondary data was obtained from Petroleum Institute of East Africa for 63 companies registered as at December 2014. Data was analyzed using an entry and price competition model to analyze data using OLS estimates for a period spanning from 2004 to 2014. The obtained results were used to make inferences and conclusions. The findings of this study showed that opportunity costs for price regulation is significant, price regulation significantly affected the market concentration by of these companies an indicator of reduced competition in the industry after the implementation of the policy. The number of firms entering and exiting the market also intensified. Therefore, as long as the policy is still in place, the regulator should always be aware of hidden costs of price regulation and should put in place structures and mechanisms to ensure that competitive markets are natured to attract investors into the country.


Keywords


Divestments; Market Structure; Pricing laws.

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