From Fragmented Markets to Oligopoly: How Price Volatility and Rising Per Capita Income Drive the Structural Shift from Unorganised to Organised Markets

Abstract

This paper examines why markets with large unorganised sectors — made up of thousands of small, informal traders and shops— progressively lose ground to a small number of large organised players, eventually forming an oligopoly. We argue that two forces work together to make this happen: (1) commodity price volatility, which hurts small operators far more than large ones because of working capital and financing constraints, and (2) rising per capita income, which shifts consumer preference toward quality-certified, brand-backed products that only organised players can credibly offer. We introduce the Volatility-Organising-Income (VOI) Index as a simple, measurable indicator that captures both forces jointly. Using secondary data from three Indian industries — gold jewellery (FY2015–FY2026), mobile telecommunications (2014–2024), and FMCG/retail (2012–2024) — and supported by regression analysis and the Herfindahl-Hirschman Index (HHI) as our concentration measure, we show that a combined one-standard-deviation increase in the VOI Index is associated with a 4.1–4.4 percentage point annual increase in the organised sector's revenue market share. All three markets followed the same structural path from atomistic competition toward tight oligopoly within a decade of the dual shock, despite having completely different commodity price dynamics. The results have implications for competition policy, MSME protection, and formalisation strategy in high-growth emerging economies.