This has allowed them to compete on the basis of

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Unformatted text preview: Table 5.9 shows the market shares controlled by the three largest firms in 12 different industries across six nations. The higher the market shares of the largest firms, the more concentrated the industry. ECL 2-28 3. Markets in the U.S.A. tend to be less concentrated; markets in Canada and Sweden are more concentrated. A much larger market and greater aggregate wealth in the U.S. means that demand is likely to be greater, and so more firms can enter the market, so that the largest firms have a smaller share of the market in the U.S. Growing populations and incomes in Japan and Europe have allowed their manufacturers to achieve scale economies domestically. This has allowed them to compete on the basis of price with established U.S. firms. R.E. Marks ECL 2-29 Lower costs of transport and communications and lower tariffs and non-tariff barriers to trade have lowered the costs of international trade, enabling manufacturers access to global markets, further increasing their economies of scale. The number of firms in a given market in a given country increasingly depends on how many firms can fit into the global market. Industry Largest four _ _______________________________________ Tobacco products 100 Petroleum refining 85 Ready mixed concrete 69 Refrigerators & appliances 46 Biscuits 95 Jewellery & silverware 15 Printing & bookbinding 14 _ _______________________________________ Four-firm Concentration Ratios in Australian Manufacturing Industries 1982–83 R.E. Marks ECL 2-30 Exogenous v. Endogenous Fixed Costs and Market Structure FC are not only technological (blast furnaces, jumbo jets, drugs testing programmes) or exogenous, beyond the firm’s control. Such things as R&D for product improvement and advertising for brand equity are under the firm’s control — endogenous — so the firm could choose not to incur them before manufacturing. The firm will incur these expenditures so long as the marginal benefits exceed the marginal costs of doing so. For many food products (bread, margarine, soft drinks, pet foods, beer) John Sutton found, using the D* QMES rule of thumb, that one might expect to find many more firms in each food category than exist. e.g. frozen foods: expect over 100 firms in the U.S. market, but every category dominated by a small number of firms. Substantial FC in establishing brand-name recognition (“brand equity”), so that small to midsize firms make little headway. R.E. Marks ECL 2-31 The Survivor Principle The survivor principle borrows from evolution’s “survival of the fittest” (Spencer, not Darwin). Just as the fittest species survive in their natural niches, so the fittest firms (the most efficient, with optimum size) survive in their market environments. Hence industries with significant economies of scale should be dominated by large firms, but ... To assess the importance of a variety of firm characteristics, including size: 1. Classify the firms into the characteristic in question 2. Measure performance (e....
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This note was uploaded on 02/04/2014 for the course TIDB 1010-18 taught by Professor Kellygrany during the Fall '13 term at Tulane.

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