by Alimbayeva Zhanar

In very few countries in the world the transport sector is as important as in Kazakhstan. Indeed, Kazakhstan has a combination of very special geographic features: it is large; it is sparsely populated, with a density of six inhabitants per square kilometer; and its population, natural resources, and centers of economic activity are very dispersed. Kazakhstan is also remote from foreign markets (more than 5,000 km to Germany or to eastern China, for example). The economic structure and trade patterns inherited from the former Soviet Union (FSU) (with a few large specialized production units, and an emphasis on the production of raw materials and intermediary goods in Kazakhstan) generate a demand for large volumes of freight transport. Because of all these unusual features, the Kazakh economy is the most freight transport-intensive in the world. There is, for example, more freight transport per person in Kazakhstan than in Canada and Australia, although the GDP of these countries is five to seven times higher. Passenger transport is also important in Kazakhstan, though it does not have the same levels of intensity as freight transport. Consequently, the Kazakh economy is more dependent on the performance of the transport sector than almost any other economy. Illustrative of this is the fact that the cost of transport may account for up to 50% of the total cost of some important exports, such as grain and coal. More importantly, internal and external trade, which, given its structure, affect the efficiency of the Kazakh economy even more than usual, much depend on the cost and quality of transport.

Transport demand in Kazakhstan has fallen drastically since the breakup of the FSU. By 1994, freight transport had declined to 34% and passenger transport to 51% of their respective 1990 peak levels. This demand was primarily a result of the contraction and restructuring of Kazakhstan's economy, and has affected international transport (which is mostly with other FSU countries) and domestic transport equally.

Competition and open entry to private companies are necessary to ensure that the types of transport services demanded are indeed provided to customers, and at the lowest possible cost. Yet, although some important elements of competition in transport have been introduced since 1991 (especially in road freight transport and in the road construction and maintenance industry), large parts of the sector are still organized around State-owned monopolies, unnecessarily shielded from competition. Also, the framework of laws and regulations for the transport sector is still incomplete and, in some cases, needs improvement.

In road transport, the most serious deficiencies concern inter-city passenger transport. These are mainly due to the monopolistic policies of regional transport associations, and to various pricing distortions.

Competition in air transport is developing throughout the world (most recently in the European Union) and countries with an air transport market the size of Kazakhstan's (for example Argentina) are benefiting from domestic competition. By freeing decisions and rewarding initiatives in all operational aspects, the creation of an open and competitive domestic market would go a long way towards resolving the current crisis in air transport.

For railways, international experience indicates effective ways of introducing competition for the maintenance of rolling stock and infrastructure, as well as for the provision of rail services.

Even with a strong privatization effort continuing in the sector, some major transport enterprises (especially the railways, the urban passenger transport companies, the airline if the Government chooses not to divest, and the airports, if not under a concession regime) are likely to remain under State ownership and management for some time.

1. Would you characterize the transport industry in Kazakhstan as monopolically competitive?
2. If yes, which characteristic of the monopolistic competition is the best presented in case of the Kazakhstani transport industry?
3. What market model did the transport sector in the FSU belong to?

1. What is the difference between monopolistic competition and pure monopoly? Pure competition?
2. Explain the role and the purpose of advertising to a monopolistaically competitive firm. Describe the possible effects of advertising upon a firm's output and average costs.
3. What are the wastes of monopolistic competition?

1. The larger the number of rivals and the weaker the product differentiation, the will be the elasticity of each seller's demand curve.

2. When we talk about competition based upon product quality and advertising, we talk about

competition.

1. In the short run, as new firm comes, the demand curve faced by the typically firm will:

1. shift to the left,
2. shift to the right,
3. remain constant.

Explain why.

1. Which of the following schools considers advertising as information, that is, the relatively inexpensive means of increasing the number of substitute products known to buyers?

1. anticompetitive view,
2. procompetitive view,
3. none of the above.

1. Under monopolistic competition, a firm can use selling expenses to increase its profits. We know that such expenses are:

1. a social waste,
2. entirely socially productive,
3. large in many industries, but we are able to say with confidence about their social productivity,
4. all of the above,
5. none of the above.

1. The graph shows:

1. short-run profits,
2. short-run losses,
3. long-run equilibrium

MC

ATC

P=AC

D

MR

Q

1. Under the monopolistic competition the impact of one firm's actions upon of its many rivals is very large.

2. Product differentiation is one of the most important features of the monopolistic competition.

3. The demand curve faced by a monopolistically competitive seller is highly, but not perfectly, elastic.

4. The equality of price with minimum average total cost suggests the achievement of allocative efficiency.