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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.
Ready mixed concrete
Refrigerators & appliances
Jewellery & silverware
Printing & bookbinding
Four-ﬁrm Concentration Ratios in
Australian Manufacturing Industries 1982–83 R.E. Marks ECL 2-30 126.96.36.199 Exogenous v. Endogenous Fixed Costs and
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
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
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 2-31 188.8.131.52 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
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.
- Fall '13