FACTA UNIVERSITATIS
Series: Economics and Organization Vol. 17, No 4, 2020, pp. 343 - 356

https://doi.org/10.22190/FUEO201005025V

Original Scientific Paper

MEASURING SUPPLY CONCENTRATION

ON THE SERBIAN OIL AND OIL DERIVATES MARKET

BY HERFINDAHL-HIRSCHMAN INDEX1

UDC 339.13:553.982

Milan Veselinović1, Snežana Radukić2

1Higher Economics School of Professional Studies Pec - Leposavic, Serbia
2Faculty of Economics, University of Niš, Serbia

Abstract. One aspect of the intensity of competition analysis of the national oil market

is the measurement of the concentration of supply, to which this paper is dedicated.

That is why it is not surprising that there are different interpretations of these economic

categories. The analysis of these phenomena dates back to the emergence of production

relations and production forces. The relaxation of regulatory measures on the national

oil market has opened the space for building quality competitive relationships between

the participants. Market opportunities, conditions and competition in practice are

determined by concentration in the certain observed market. Competitive relations

between market participants change over time. Those changes impact on concentration

level of certain and well defined market, in this case the oil market of the Republic of

Serbia. As the competition changes, the concentration level changes as well. This is the

reason why this paper is focused on concentration level measurement and analysis. In

measuring and expressing the concentration level of the certain market, many

concentration indicators could be applied. Our choice was Herfindahl-Hirschman Index.

Key words: oil and oil derivatives market, concentration indices, competition level

JEL Classification: L13

Received October 05, 2020 / Revised October 30, 2020 / Revised November 05, 2020 / Accepted November 09, 2020

Corresponding author: Milan Veselinović
Higher Economics School of Professional Studies Pec-Leposavic, Serbia

E-mail: milanveselinovicnis@gmail.com

344 M. VESELINOVIĆ, S. RADUKIĆ

INTRODUCTION

Each relevant market could be described and characterized by a certain level of

competition between participants. The market strength of participants in the observed

market can be determined based on competitive relations. For this reason, this paper

focuses on the competitive relationships between participants, on the level of market

concentration, and on the market power that arises from such relationships.

Market strength can be defined as the ability of a company, or several of them, to

profitably increase the price of the product(s) in a certain market, above the marginal costs,

i.e. competitive prices (Zdravković et al., 2013). According to Kostić, “From the fact that

every company operates in the market area and that its market power is expressed in it, it

follows that the relevant market should be precisely defined, firstly in a place in which a

particular company operates, and then the market power of the company itself”, (Kostić,

2013, p. 41), it could be said that the relationship between competitors within a particular

relevant market largely determines the degree of concentration in a certain market.

Therefore, when studying the concentration and market power of market participants, it is

necessary to first determine the framework of the market itself, i.e. the relevant market, and

then select an adequate form for its measurement, which is done in this paper.
However, according to Kostić (2016), “The level of concentration in a given relevant

market is influenced by various factors, such as competitors, dispersion of market share,
barriers to entry/exit from the market, economic potential, geographic size of the market,
level of regulation of trade flows, regional integration, technological development, rapid
information flow, legal regulations, etc.” (Kostić, et al., 2016, p. 94). Thus, the importance
of concentration indicators is relative over the time dimension, bearing in mind that they are
influenced by many different factors, and the influence of many factors itself changes its
intensity over time. However, their importance in measuring the market power of economic
entities and pointing out inequalities in the relevant market is not negligible, because they
indicate the nature of the branch (market) and the ability of consumers to choose which
product to buy. The technological factor and the fast flow of information can have a
positive effect on the course of the analysis because it is easier and faster to get the desired
data, information, calculations, and possible changes in the relevant market. In economic
theory, many examples of measuring the market power of companies could be found that
determine the degree of limitation of the observed market. (Veselinović, 2016).

Research by Kostić provides and promotes a large number of indices that could be used

for this purpose; we have considered to include in this analysis the Lerner index, cross-

elasticity of demand index, and concentration indices. This paper is dedicated to concentration

indices. As such, they are used in the implementation of antitrust policy measures, which

gives the results presented in this paper practical significance (Kostić, 2009). Antitrust

policymakers often rely on the calculated values of these indicators to make important

decisions regarding the appearance of certain economic entities in the relevant market. They

enable the analysis of the current market situation, taking into account the changes that are

happening in it, and they are also used to predict and analyze future market trends.

What we would especially like to point out in this paper is that concentration indices are

subject to changes that economic entities go through, and they are related to their market

share in the relevant market. Therefore, under these changes, the value of the concentration

index also changes. For the concentration indices to be comparable between different

branches and periods, they are often subject to appropriate mathematical operations to

reduce their value to the interval from 0 to 1 (Zeigenfuss, 2000).

Measuring Supply Concentration on the Serbian Oil and Oil Derivates Market by Herfindal-Hirschman Index 345

There is a long list of indicators of concentration that economic experts may use to

describe as accurately as possible the degree of concentration in the market, or restrictions on

competition in the market. The analysis could include the following indicators:

1. Concentration ratio;

2. Herfindahl-Hirschman index;

3. Dominance index;

4. Hal-Tidman and Rosenblatt index;

5. Comprehensive branch concentration index;

6. Gini coefficient;

7. Lorentz curve;

8. Entropy coefficient, etc.

Generally, the image of the level of restrictions on competition in the market, above

all, depends on market participants and the distribution of market share, sales, revenue,

region, resources in one market, but also the availability of data. If the level of

concentration of the four largest companies in the relevant market is methodologically

accurate, the difference in the size of market share between all companies in the relevant

market is accurate, as well as the uneven distribution of market shares between

companies, the image of the level of competition restrictions in the relevant market can

be much clearer. Then a series of conclusions and/or further decisions could be extracted

regarding the strengthening of competitive relations within the branch. Taking into

account the above, and according to the available data, in this paper, we decided to

analyze the results obtained by calculating the Herfindahl - Hirschman index.

1. HERFINDAHL-HIRSCHMAN INDEX – THEORETICAL BACKGROUND

This concentration index takes into account the difference in the size of market share

between companies. Also, in the calculation of concentration through this index, all

companies operating within the branch are taken into account. The Herfindahl-Hirschman

concentration index (hereinafter HHI) represents the sum of market shares of companies

weighted by their market share:


==

==
n

SiWiSiHHI
1

)( (1)

where Wi represents ponder, and Si is the market share of the i-th company (Waldman &

Jensen, 2011).

Each firm is assigned a specific weight that corresponds to its market share (wi = si).

Mathematically speaking, according to Kostić, „HHI represents a convex function of

market shares, so it is very sensitive to inequality in the distribution of market share“,

(Kostic, 2013, p. 122).

HHI respects market shares in the industry, with the focus on companies with higher

market shares, and a larger number of such companies affect the growth of this index. As

can be seen in Table 1, its value ranges from 0 to 1, or from 0 to 10,000, (Begović et al.,

2002). In the case of an unlimited number of companies with a very small market share,

its value will be equal to 0. Conversely, its value will be equal to 1 if a monopoly

346 M. VESELINOVIĆ, S. RADUKIĆ

structure operates in a particular market. More detailed levels of concentration are given

in the following Table 1.

Table 1 Herfindahl-Hirschman concentration index levels

HHI value Level of the concentration

HHI less than 1,000 (0.1) low concentrated supply

HHI between 1,000 (0.10)

and 1,800 (0.18)
medium concentrated supply

HHI between 1,800 (0.18)

and 2,600 (0.26)
highly concentrated supply

HHI between 2,600 (0.26)

and 10,000 (1.00)
very highly concentrated supply

HHI greater than 10,000 (1.00) monopoly concentrated supply

Source: Begović, B., Bukvić, R., Mijatović, B., Paunović, M., Sepi, R., Hiber, D., 2002.

Antitrust Policy in FR Yugoslavia, Center for Liberal-Democratic Studies, Belgrade, p. 35.

The application of HHI enables a clearer analysis of the observed market. The

Herfindahl-Hirschman concentration index or HHI is widely accepted in the economic

theory and practice of many countries, because it is very easy to calculate and interpret,

and it also provides additional info-benefits. Namely, its reciprocal value shows how

many economic entities of the same size can achieve a given value on the observed

market, (Kate, 2006).

The reciprocal value pattern (

HHI ) is as follows:

HHI
Si

n
n

SiSi
11

2
)2(

1
21

)()( ==
=

=
=


=

−
−

(2)

The value of the reciprocal value of HHI can be from 1 to n. If its value is 1, then there is

one dominant company in the market, and if it is n, then in the market all economic entities

have the same size and the same market share, (Waldman & Jensen, 2011).

In practice, a special form is sometimes used when expert bodies cannot determine

market shares for all companies in the observed market. This is the following pattern:

100


















−




= m

mSiHHI

i
n

(3)

Measuring Supply Concentration on the Serbian Oil and Oil Derivates Market by Herfindal-Hirschman Index 347

In this form, n represents the number of identified and m the number of unidentified

companies. For this form to be expedient, it is necessary for the number of identified

companies to be higher than the unidentified ones. If there are a large number of unidentified

companies, this pattern loses relevance in assessing the concentration of the observed

market, (Maksimović, et al., 2011).

2. METHODOLOGY, DATA COLLECTION AND MARKET CONCENTRATION

MEASUREMENT PROCEDURE

The concentration of the market on the supply side reflects the degree to which the total

sales (supply) in a particular market is under the control of a small number of companies,

i.e. only one company in the last resort. Starting from the theoretical basis presented in the

previous part of the paper, research was performed that includes an analysis of the domestic

market of oil and oil derivatives to examine the degree of concentration and conditions of

competition. The analysis covers the market of oil and oil derivatives on the territory of the

Republic of Serbia. The research was conducted in the period from December 21st, 2018, to

July 31st, 2020, and included the following research steps:

1. developing hypotheses and defining subjects and goals, as well as preparing research;

2. data collection, the definition of the relevant market and selection of variables;

3. data processing and analysis;

4. presentation of data gained and conclusions.

Setting hypotheses and defining goals was the starting point in the research. In addition to

the active ones, the most important oil companies have been defined, which stand out from

other companies in the domestic market of oil and oil derivatives in terms of revenue, and

which will be the focus of research. Also, the forms of data that will be collected are defined

based on the possibilities of data collection, planned methods of application, and their

significance, (Kostić, 2014). During each step, certain actions were realized that were planned

for each step, so we will explain them first.

The null and alternative hypotheses from which we started are:

H0: In the relevant oil and oil products market there exists a high concentration between

participants;

H1: In the relevant oil and oil products market a high concentration between participants

does not exist.

Taking into account the views from the null and alternative hypotheses, it is clear that

the focus is on concentration in the relevant market. The subject of this paper is the

analysis of market circumstances in the domestic market of oil and oil products and the

verification of initial hypotheses. The period of 9 years of business, 2010-2018, was

observed. A large number of oil companies operate on the market of oil and oil

derivatives of the Republic of Serbia. Based on the data of the Serbian Business Registers

Agency, in the period 2010-2018, a total of 16 representative economic entities were

identified and thus selected, which in that period operated on the domestic market of oil

and oil derivatives (Veselinović, 2016). In the meantime, one business entity was

excluded from the survey due to the initiated bankruptcy procedure, so the final total

number of oil companies for the observed period was 15.

The aim of the research should be a more realistic assessment of the degree of market

constraints and market power of certain companies in a given market in order to assess

348 M. VESELINOVIĆ, S. RADUKIĆ

market circumstances, as well as giving recommendations to strengthen competition. The

results of the research will also be used to undertake economically based activities.

Therefore, the research aims to determine the level of limitations of the market of oil and

oil derivatives under the obtained results, but also at the measures that should be applied.

The measures should take into account the size and complexity of the Serbian market of

oil and oil derivatives, but also the economy size itself.

3. DEFINITION OF THE RELEVANT MARKET FOR THE CONCENTRATION MEASUREMENT

In the process of measuring the concentration and market power of participants in a

particular market, it is necessary to define a framework within which to analyze the

competitive positions of economic entities themselves. The market to be determined, to

which the concentration indicators will relate, is the relevant market. The purpose of its

definition, i.e. determining its boundaries, is to identify economic entities that will be in

the focus of the application of economic analysis as mutual competitors in that market

(Gerald & Ewin, 2008).

Determining the domain of analysis implies determining the relevant market. The

relevant market is closely related to the elasticity of supply and demand, depending on

the nature of supply and demand of the market itself. Also, the relevant market has a

subject and a spatial dimension. Therefore, the determination of the relevant market

implies its determination both from the geographical aspect and from the aspect of the

product sold on that market. Thus, from the aspect of the activity of participants in a

certain market, we distinguish between the relevant product market and the relevant

geographic market (Zeigenfuss, 2000).

The area dealing with the definition of the relevant market uses data on price

movements, production, domestic consumption, and total sales to form the boundaries of

the relevant product market and the relevant geographic market. To define the relevant

product market, we used the correlation test in price movements, and for defining the

boundaries of the relevant geographic market the Elzinga-Hogarthy test. The data used

for these tests were taken from secondary sources, and the methodology and results are

presented below.

In determining the relevant product market, we started from the conclusion that there

are no very close substitutes for oil and petroleum products. Starting from the manner and

representation in meeting the same or similar needs, one of the substitutes could be

electricity. To examine the correlation, we started from statistical hypotheses:

HO: There is no statistically significant correlation between the movement of average

retail prices of oil and oil derivatives and electricity;

H1: There is a statistically significant correlation between the movement of average

retail prices of oil and oil derivatives and electricity.

Measuring Supply Concentration on the Serbian Oil and Oil Derivates Market by Herfindal-Hirschman Index 349

Table 2 Movement of current prices, annual inflation rate, and adjusted prices of fuel and

electrical energy in the period from 2006 to 2015

Year

The average

retail price

of fuel

(per liter)

Average

retail price

el. energy

(per kilowatt-hour)

Average

annual

inflation

(%)

Average the

retail price of fuel

(per liter)

in 2006 prices

Average retail

price el. energy

(per kilowatt-hour)

in 2006 prices

2006 80.2 5.1 12.7 80.2 5.1

2007 83.3 5.3 6.5 80.1 5.6

2008 112.1 6.8 12.4 126.0 7.6

2009 99.8 6.9 6.7 186.5 7.4

2010 110.4 6.8 6.6 117.7 7.2

2011 121.4 7.5 5.5 128.1 7.9

2012 124.6 7.6 4.9 130.7 8.0

2013 133.2 7.8 4.4 109.1 8.1

2014 131.5 7.9 4.3 137.2 8.2

2015 130.1 8.1 4.2 135.6 8.4

Source: Republic Bureau of Statistics, review,

http://webrzs.stat.gov.rs/WebSite/Public/PageView.aspx?pKey=3, visited on July 5/2019

The level at which average retail prices of oil and petroleum products and electricity

correlate over ten years (2006-2015) is estimated (Table 2). The correlation testing is

performed through prices adjusted to the 2006 level. To eliminate the effect of image

distortion provided by testing, we have canceled the effect of inflation. We did this by

using data on the calculation, i.e. correctors on the inflation rate, which were determined

through the movement of consumer prices obtained from the website of the European

Bank for Reconstruction and Development and the Republic Bureau of Statistics website.

Based on the obtained results on the degree of correlation and indicators of statistical

significance, we rejected the zero and accepted the alternative hypothesis. It turns out that

there is a direct correlation between the prices of the observed products (Table 3). The

relationship is statistically significant, which confirms the probability value of r, which is

less than 0.05 (0.042 / 0.027). However, the value of the correlation coefficient that we

obtained indicates that these two products are not substitutes (0.661), i.e. the value of r is

not above 0.8 (0.661 / 0.685). We believe that similar results would be obtained if similar

potential substitutes were taken into account. Thus, the market for oil and oil derivatives

independently constitutes the relevant product market.

Table 3 Correlation coefficient of the movement of average retail prices of fuel and

electrical energy in the period from 2006 to 2015

MPC2006

Pearson Correlation 1 .661*

Sig. (2-tailed) .042

N 10 10

MPCee2006

Pearson Correlation .685* 1

Sig. (2-tailed) .027

N 10 10

* Correlation is significant at the 0.05 level (2-tailed).

Source: Author's calculation based on the database of the European Bank for Reconstruction and Development,

public stat., Http://www.ebrd.com/where-we-are/serbia/overview.html, accessed 22.11.2019

350 M. VESELINOVIĆ, S. RADUKIĆ

Furthermore, the data required for the Elzing-Hogarthy test were also collected from

secondary sources, i.e. Statistical Yearbooks of the Republic of Serbia, the Energy

Balance of the Republic of Serbia, and the European Bank for Reconstruction and

Development web site, where the statistical calendar of important variables is presented.

Based on the results of LOFI, i.e. LIFO tests, it is clearly determined where the domestic

market of oil and oil derivatives belongs (Table 4 and 5). The LOFI test measures the

share of exports in the production of the relevant market, and the LIFO test measures the

share of imports in the consumption of the relevant market. This statement can be

followed by the fact that during the last fifteen years, several European well-known oil

companies have entered the domestic market, such as Lukoil, OMV, Gazpromneft, Eko.

Namely, “Frech argued while the computation of LIFO and LOFI in a given area is a

straightforward task, an area in which both the LIFO and LOFI criteria are simultaneously

satisfied need not be unique. For example (using zip codes as the “building blocks” with

which to construct a geographic market, as is common in practice), suppose that for a given

zip code, LIFO and/or LOFI does not meet the 0.75 thresholds. This implies that this zip

code in isolation does not constitute a geographic market according to the Elzing-Hogarthy

criteria, and thus to create a geographic market, additional zip codes need to be included.

The choice of which zip code(s) should be incrementally added to the initial zip code can

potentially affect the size of a market and the number of competitors. For example,

adding zip codes based on a fixed radius from an initial geographic point can produce a

different market than if one were to iteratively add zip codes based on the zip code that

contributes the most to either the LIFO or LOFI statistic”, (as cited in Gaynor, 2012, p. 9).

Table 4 Relevant geographic market depending on the value of Elzinga-Hogarty test

results (LOFI/LIFO test)

LOFI /LIFO value Description of the relevant geographic market

< 10% Highly relevant market

10% - 25% Poorly relevant market

>25% Share of the wider relevant market

Source: Hendry, L.C., Eglese, R.W. 1990. Data Envelopment Analysis.

Operational research Society. The United Kingdom.

Table 5 Values of the Elzing-Hogarthy test (LOFI/LIFO test) for the period from 2011

to 2014

Year LOFI values LIFO values

2011 0.091 44.6

2012 0.063 44.5

2013 0.059 43.3

2014 0.052 40.2

Source: Author's calculation based on the database of the European Bank for Reconstruction and

Development, public stat., Http://www.ebrd.com/where-we-are/serbia/overview.html, accessed

22.11.2016

Starting from the fact that the territory of the Republic of Serbia is a rounded territory

where the legal framework, antitrust regulations, and numerous oil companies operate, we

concluded that the relevant geographic market of oil and oil derivatives is independently

Measuring Supply Concentration on the Serbian Oil and Oil Derivates Market by Herfindal-Hirschman Index 351

constituted in the Republic of Serbia. The relevant geographic market of oil and oil

derivatives on the territory of the Republic of Serbia is also confirmed by the results of the

Elzinga-Hogarti test (LOFI/LIFO test), obtained based on the collected data. To make the

results more objective, we took into account the period longer than two years (2011-2014),

which is part of the time frame of the analysis itself. Based on the criteria presented in

Table 4 and based on the data shown in Table 5, it can be concluded that the domestic

market of oil and oil derivatives is a very relevant geographic market viewed from the

aspect of exports, i.e. part of the wider relevant market from the aspect of imports. Namely,

the values for the observed period moved between 5.2% and 9.1% (Table 5).

After collecting, supplementing, and verifying data obtained from the Serbian Business

Registers Agency, the Serbian Republic Bureau of Statistics, and the European Bank for

Reconstruction and Development, the survey included 15 oil companies. The representative

sample is also included. Namely, there is a belief that taking a large number of economic

entities into the analysis can reduce the analytical significance of this concentration

indicator by increasing the value of this index, and for that reason, we followed the

recommendations in the instructions for calculating selected indicators.

The representative sample contains four to seven large, medium, and small companies,

depending on the methodology and instructions for calculating the indicators themselves. In

addition to NIS i.e. Gazprom Neft, OMV, Lukoil, Eko, and Knez Petrol also stand out as large

companies. Some of the above also deal with the wholesale trade of oil and oil derivatives, for

example, the Transnafta company. In addition to larger oil companies, a large number of small

oil companies have been registered. According to the collected data, a larger number operate

unprofitably and are on the verge of bankruptcy, while a certain smaller number successfully

manage the market and generate significant revenues.

4. MARKET CONCENTRATION ANALYSIS BY USING HERFINDAHL-HIRSCHMAN INDEX

After defining the relevant market, the obligatory step is the selection of the
appropriate variable through which the degree of concentration of competitors in the relevant
market will be measured. The variable is used to calculate the market share of each economic
entity in the relevant market. Taking into account the subject and goal of economic analysis,
but also the availability of primary and secondary data sources, in practice it can be used
through variables such as profit, realized income, and production for a certain period, number
of employees, total assets, number of branches, sub-branches, and their turnover, distribution
of organizational units, number of subcontractors, etc. Combining variables is possible, but
only under specific circumstances.

In general, economic analysis can also yield contradictory conclusions if different
variables are used. At the very least, such results may be seemingly accurate, but substantially
far from the desired objectivity. For that reason, it must be borne in mind that each variable
brings with it certain limitations. The practical application of the obtained results often
depends on the analytical and subjective assessment of the researcher, but also on the
circumstances under which the analysis itself is realized. For the purposes of this paper, the
results obtained based on the analysis could be applicable only if, when determining the
domain of the analysis, they put market power in the foreground. As market power is
reflected through the realized income on the relevant market, the focus of this research is in
the first place the realized income that the companies realized on the relevant market for the
observed period.

352 M. VESELINOVIĆ, S. RADUKIĆ

Annual realized income is taken as an adequate indicator for many reasons: it gives us

information about the value of sales on an annual basis, regardless of whether the

product/service was created in the observed or previous year, and sales revenue is related

to the core business of oil companies and excludes revenue generated on the other bases.

Annual realized incomes of oil companies can be found in the attached link addresses,

and the percentage shares of realized incomes of individual oil companies in the total

realized revenue for the period 2010-2018, which we will rely on in the assessment, are

given in Table 6.

Table 6 The percentage share of realized incomes of individual oil companies in the

realized total income of all oil companies for the period 2010–2018

Company/Year 2010 2011 2012 2013 2014 2015 2016 2017 2018

NIS/Gazprom Novi Sad 55.1 52.7 54.4 60.2 59.9 57 54 56.6 58.8

Lukoil Serbia Belgrade 13 12.4 10.9 7.2 8.4 9.1 8.8 7.4 7.6

ОМV Serbia Belgrade 11.1 9.8 9.2 7.4 7.2 9.2 8.5 8.0 8.0

Кnez Petrol Serbia Belgrade 6.4 8.8 9.7 8.9 9.7 6.2 7.7 10.6 9.7

Intermol Serbia Belgrade 3.9 3.7 4.3 4.8 4.9 10 11 10.3 9.8

Nafte Serbia Belgrade 3.2 3.6 1.3 1.2 1.3 0.9 0.3 0.0 0.0

PC Transnafta Pancevo 0.17 0.13 0.14 0.20 0.16 0.0 0.0 0.0 0.0

Source: Made by the author based on data from the Business Registers Agency of the Republic of Serbia,

http://www.apr.gov.rs, visited 7.5. 2020

Based on the data about the market shares of oil companies shown in Table 6, it can

be said that the market of oil and oil derivatives of the Republic of Serbia is an

oligopolistic market with one dominant company (about 55% market share), several large

ones that follow it (about 10% market shares), several smaller (followed by 5-10%

shares), and a group of small businesses (less than 1% shares). In the following, based on

the collected information, the level of limited competition on the market of oil and oil

derivatives of the Republic of Serbia for the period 2010-2018, will be determined by

estimating the Herfindahl-Hirschman index.

The HHI index for the relevant market in the observed period 2010-2018 ranged

between 3,100 and 3,840, which can be seen in the attached Table 7 and on the graph in

Figure 1.

Measuring Supply Concentration on the Serbian Oil and Oil Derivates Market by Herfindal-Hirschman Index 353

Table 7 Herfindahl-Hirschman index of supply concentration in the relevant market of

oil and petroleum products in the period 2010 – 2018

Year/HHIndex HHI ∆HHI

2010 3360.45

2011 3133.17 -227.28

2012 3286.19 153.02

2013 3838.34 552.15

2014 3793.49 -44.85

2015 3638.90 -154.59

2016 3212.98 -425.92

2017 3538.72 325.74

2018 3768.37 229.65

Source: Author's calculation based on the data of the Business Registers Agency

of the Republic of Serbia, http://www.apr.gov.rs, visited 7.6. 2020.

Fig. 1 Herfindahl-Hirschman supply concentration index in the relevant market of oil and

oil derivatives in the period 2010 - 2018
Source: Graphic presentation based on the author's calculation based on the data of the

Business Registers Agency of the Republic of Serbia, http://www.apr.gov.rs, visited 7.6. 2020

NIS/Gazprom Neft, Lukoil, OMV, Knez Petrol, and Mol are big players in the

domestic supply market. This is confirmed by the data on the market share of each oil

company in the realized income, which is shown in Table 1. Therefore, the obtained values of

the Herfindahl-Hirschman concentration index objectively reflect the distribution of market

share and market power concentration in the relevant market (Table 7). According to the

value of HHI, it is obvious that the offer on the relevant market is very highly concentrated.

354 M. VESELINOVIĆ, S. RADUKIĆ

CONCLUDING REMARKS

The obtained results of the conducted research give us a basis for drawing interesting

conclusions. The results of the analysis of the relevant market for the period from 2010 to

2018 unequivocally indicate a high level of concentration, and resume may be in the next

form: HHI index for the relevant market in the observed period ranged between 3,100 and

3,840.
It is unequivocally clear that the supply of the oil and oil derivatives market of the

Republic of Serbia is very highly concentrated. The obtained values of the calculated
coefficients and the specific state of uneven distribution are caused by the high concentration
of supply on the domestic market of oil and oil derivatives. This is confirmed by the data on
the market share of each oil company in the realized incomes, shown in the first table. Of
course, NIS/Gazprom Neft with 55%, and the group Lukoil/Knez Petrol/Mol/OMV stand out
in terms of the percentage share of the realized incomes, and together hold over 85% of the
participation in total realized incomes. More specifically, the oil and oil products market is an
oligopolistic market with one dominant company NIS/Gazprom Neft (about 55% market
share), several large ones following it (about 10% market share), several smaller ones
following them (5-10% participation) and the group of the smallest companies (less than 1%
participation). As a reflection of these relations on the market, the upward growth of the trend
of uneven distribution of market share stands out.

The high values of the HHI also reflect structural changes and developments in the
domestic market of oil and oil derivatives. During 2010, the program of transformation and
modernization of NIS/Gazprom Neft was realized, which enabled a profitable and stable
position of this oil company. Since 2011, the already large market share of NIS/Gazprom Neft
has gradually increased. Thanks to investments and support from the state, NIS/Gazprom Neft
has become a vertically integrated company since 2013. The complete process from research
and development, through production and logistics, all the way to wholesale and retail
represents one closed functional system of NIS/Gazprom Neft. That is why it is not surprising
that this oil company dominates the relevant market of oil and oil derivatives of the Republic
of Serbia. The relative decreases in the values of certain indicators during 2011 and 2016 are
related to the decrease in the number of gas stations (supply quantity) of NIS/Gazprom Neft
concerning the decrease/increase in the number of gas stations of other serious market
participants (Lukoil, OMV, Eko) during the observed period.

It is logical that this analysis also results in a better understanding of the competitive
behavior of the leading oil companies in the market. As the market for oil and oil
derivatives is relatively small, no increase in the number of participants on the supply
side is expected. For this type of market, it is typical for companies to use a limited
market to install a large profit margin, and to make as much profit as possible, all at the
expense of customers. This kind of situation in the domestic oil and oil derivatives
market is subjected to the anti-monopoly policy of both domestic and foreign legislation.
Commission for Protection of Competition should pay special attention to the policy of
the retail price formation. Appropriate implementation of the regulation for forming
prices in the oil and oil derivatives market is only possible under the strict control of the
Commission, because the chances of an agreed performance in the relevant market are
really big, which is supported by indicators. In this context, we draw attention to the
potential for the agreed performance and the agreed price.

Formal and tacit agreements certainly exist, but they are difficult to prove. This
practice should be stopped as soon as possible by adequate and systematic measures. The

Measuring Supply Concentration on the Serbian Oil and Oil Derivates Market by Herfindal-Hirschman Index 355

strengthening of competitive relations, and thus the increase of business efficiency
between companies is not expected unless the state reacts. Based on the derived
conclusions and findings, appropriate measures can be taken to increase competition and
the business efficiency of oil companies. In such circumstances, maintaining and raising
the quality of products and services is questionable, and it would be best to encourage
competition between oil companies and increase their economic efficiency.

However, it should be emphasized that large companies, such as NIS/Gazprom Neft
in the observed market, greatly contribute to increasing efficiency across the branch. We
should keep in mind that restricting the operations of NIS/Gazprom Neft and/or Lukoil
may be wrong, and the applied measures could be ineffective and wrong. Large
companies, such as NIS/Gazprom Neft, by investing in the development of efficient
business, set a good example of how to plan in the long run and strategically. Then, large
companies, by taking over small and unsuccessful companies and turning them into
successful ones, contribute to increasing the quality of the branch's supply The focus of
preventing abuse is the impact of large oil companies on the business of smaller
companies, but also on customer choice as well. Finally, the market for oil and oil
products can be further monitored and researched to reach additional conclusions.

REFERENCES

Begovic, B., Bukvic, R., Mijatovic, B., Paunovic, M., Sepi, R., & Hiber, D. (2002). Antimonopolska politika u SR
Jugoslaviji [Antitrust Policy in FR Yugoslavia]. Centar za liberalno-demokratske studije, Beograd.

Donald, B., Paul F., Michael, S., & Geringer, J. (2008). International Business. The Challengе of Global

Competition, Chicago.
Evropska banka za obnovu i razvoj [Еuropean Bank for Reconstruction and Development]. (2018). EBRD in Serbia.

Retrieved from: https://www.ebrd.com/Search.html?srch-term-user=inflation+in+serbia&srch-term=inflation%

2520in%2520serbia&srch-pg=srch&srch-type=all&pg=1&sort=relevant, Accessed on: 4. June 2020.
Gaynor, M., Kleiner, S., A., & Vogt, W. B. (2012). A Structural Approach to Market Definition With an Application to

the Hospital Industry. Retrieved from https://www.andrew.cmu.edu/user/mgaynor/Assets/MktDefPaper_

Revision_Final.pdf
Gerald, A., & Ewin, D. (2008). International Marketing and Export Management. University of New York and San

Francisco State University.

Hall, M., & Tideman, N. (1967). Measures of Concentration. Journal оf the American Statistical Association.
Edition 62. March, 162-164.

Hendry, L. C., & Eglese, R. W. (1990). Data Envelopment Analysis. Operational research Society, United Kingdom.

Keegan, W., & Green, M. (2008). Global Marketing, Global Competition. Pace University, and Westchester. New
York, Department of Accounting, Economics, Management and Marketing, Simson College, Indianola, OWA.

Kate, A. (2006). The Dominance Index in Mexican Merger Control: Does it perform better than the HHI?. Antitrust

Bulletin, 51, (2). Federal Legal Publications, Inc., US.

Кraft, Е. (2007). Kolika je konkurencija u Hrvatskom bankarskom sektoru? [How big the competition is in

Croatia?]. Istraživanja Hrvatske Narodne Banke 1-19. Hrvatska Narodna Banka, Hrvatska.

Kostić, M., Maksimović, Lj., & Stojanović, B. (2016), The limitations of competition in the insurance markets of
Slovenia, Croatia and Serbia. Economic Research-Ekonomska Istraživanja, 26(1), 395-418.

Kostić, M. (2014). Testing the boundaries of the relevant market in the competition policy. Ekonomski horizonti,

16(1), 31-45.
Kostić, M. (2013). Tržišna moć korporacija i koncentracija u grani [Corporation’s market power and branch

concentration]. Doktorska disertacija, Ekonomski fakultet, Univerzitet u Kragujevcu. Srbija.
Kostić, M. (2009). Supply concentration analysis in Serbian insurance sector. Industrija, 37(2), 59-77.

Lipczynski, J., Wilson J., & Goddard, J. (2009). Industrial Organization - Competition, Strategy, Policy. Oxford

University Press, United Kingdom. 3rd edition, p. 209.
Maksimović, L., Radosavljević, G., & Borisavljević, K. (2011), Concentration in the radio television program

distribution market in the Republic of Serbia. Industrija, 39(3), 31-43.

356 M. VESELINOVIĆ, S. RADUKIĆ

Nacionalni naftni komitet [National Oil Committee]. (2019). Nafta i gas [Oil and Gas]. Retrieved from:
https://www.wpcserbia.rs/sr/publikacije/oilandgas, Accessed on: 16. May 2018.

Organization of petroleum exporting countries. (2019). Oil production lines. Retrieved from: www.opec.org/

oipproduction, Accessed on: 19. April 2018.
Radukić, S., Radović, O., & Marković, I. (2013). Unapređenje konkurencije i inovativnosti kao faktori privrednog

oporavka [Competition and Innovation Increasing as te fact of the Economy Recovering]. Poslovna ekonomija

[C. Teme: Privredni oporavak Srbije – ostvareni ekonomski učinci i razvojne mogućnosti. Univerzitet
Edukons, Fakultet poslovne ekonomije, Sremska Kamenica, 2013/VII, broj 2, vol. XIII (13), 41-54.

Republički zavod za statistiku [Republican Bureau of Statistics]. (2020). Potrošačke cene [Consumer Prices].

Retrieved from: https://www.stat.gov.rs/sr-latn/publikacije/?a=03&s=0301&d=&r=2017, Accessed on: 15.

May 2020.

Agencija za privredne registre Republike Srbije [Serbian Business Registers Agency]. (2020). Pretraga

registrovanih jedinica i finansijskih izveštaja [Units and financial reports search section]. Retrieved from:
http://pretraga2.apr.gov.rs/unifiedentitysearch, Accessed on: 7. June 2020.

Stojanović, B., Milovanović, G., & Radukić, S. (2011). Globalization and transnational companies during the

times of economic crisis, Contemporary issues in the integration processes of Western Balkan countries in the
European Union. International Center for Promotion of Enterprises, Ljubljana, Slovenia. Chapter 18, pp. 288-304.

Stojanović, B., & Radukić, S. (2019). Horizontalni i vertikalni restriktivni sporazumi u politici zaštite konkurencije

[Horizontal and vertical restrictive agreements in competition policy]. In Đukić, T. & Radenković Jocić, D.
(Eds.), Digitalna transformacija u funkciji privrednog razvoja Republike Srbije (pp. 19-37). Niš: Ekonomski

fakultet Univerziteta u Nišu.

Stojanović, B., & Radivojević, V. (2010). Concentration of supply: A form of market imperfection: Example of
non-specialized retail trade in Nis. Ekonomika preduzeća, 58(7-8), 327-338.

Veselinovic, M. (2016). Efikasnost poslovanja naftnih kompanija u savremenim uslovima oligopola [Business

Efficiency of Oil Companies in Modern Circumstances of Oligopoly]. Ph.D. Thesis. Faculty of Economics, Nis.
Waldman, E. D., & Jensen, J. E. (2011). Industrial Organization – Theory and Practice. Reutledge.

Zdravković, D., Stojanović, B., & Radukić, S. (2013). Teorija i politika cena [Theory and Policy of Prices].

Faculty of Economics, Nis.
Savic, LJ. (2000). Trzisne structure u Jugoslovenskoj industriji [Market Structures in Yugoslav Industry].

Industrija, 1/4/2000.

Zeigenfuss, D. (2000). Measuring performance. Internal Auditor, 57(1), 18-27.

MERENJE KONCENTRACIJE PONUDE NAFTE

I NAFTNIH DERIVATA U REPUBLICI SRBIJI

HERFINDAL-HIRŠMANOVIM INDEKSOM

Jedan od aspekata analize intenziteta konkurencije na određenom tržištu jeste merenje

koncentracije ponude, čemu je ovaj rad i posvećen. Zato i ne čudi činjenica da postoje različita

tumačenja ovih ekonomskih kategorija. Analiza ovih fenomena datira još od nastanka proizvodnih

odnosa i proizvodnih snaga. Liberalizacija domaćeg tržišta nafte i naftnih derivata otvorila je

prostor za izgradnju kvalitetnih konkurentskih odnosa. Tržišni uslovi i konkurencija u praksi su

određeni nivoom koncentracije na posmatranom tržištu. Konkurentski odnosi između tržišnih

učesnika se menjaju tokom vremena. Te promene utiču na nivo koncentracije određenih i jasno

definisanih tržišta, u ovom slučaju tržište nafte Republike Srbije. Kako se nivo konkurencije menja,

nivo koncentracije se takođe menja. Iz tog razloga je ovaj rad posvećen merenju i analizi nivoa

koncentracije. Postoji niz pokazatelja koncentracije koji se mogu primeniti u cilju merenja i

prikaza nivoa koncentracije na određenom tržištu. Naš izbor je Herfindal-Hiršmanov indeks.

Ključne reči: tržište nafte i naftnih derivata, indeksi koncentracije, nivo konkurencije