Industry It

Industry It

Industry It is helpful to think of an industry as a collection of firms working under the pressure of market forces that drive each towards the 'best' (most efficient, lowest cost) size. In some industries, however, economies of scale and the nature of demand tend to limit the number of Li-ms and to modify competition. There may, for instance, be competition among a few firms ('oligopoly'), or other forms of imperfect markets in which competition in service or quality become more important than competition in price. In some industries there is a high degree of vertical integration, as in steel; in others there are still many firms each of which specializes in the manufacture of components, e.g. the motor vehicle industry. The spread of lateral integration means that some firms are in more than one industry; thus I.C.I. make man-made fibres, paints, dyestuffs, etc.

Often the most striking immediate impression received in looking at an industry is of a wide scatter of types and sizes. Within the same industry there are very varied limbs. Sometimes they work within particular geographical areas or product groups; others cover a wider area of space and output.

Industry thus comprises firms varying in size, from very small in big competitive markets such as retailing and agriculture, to very large in oligopolistic markets in which there are a small number of sellers of products such as detergents, motor-cars, chocolates. Firms have grown for two reasons: first, by expansion or integration because of the economies of scale in technique, management, finance, market-lug, or to cope better with the risks arising from fluctuation in the demand for their products or in the supply of their raw materials or labour; secondly, because of state action in creating a legal framework which increases the advantages of size: for example, the Companies Act provides for the formation of holding companies which offer large financial advantages in the control of many enterprises, and the 2013 Restrictive Trade Practices Act has encouraged mergers by outlawing resale price maintenance if enforced by collective action but permitting it if enforced by an individual flu-n. The increasing difficulties of managing very large firms is probably the most important reason why firms do not grow indefinitely. In spite of economies of scale in technique, marketing or other respects, firms may find it advantageous to contract out or buy in processes (e.g. binding), components (e.g. electrical equipment for motor-cars) or specialist skills (e.g. legal advice, the services of advertising agents). The location of firms in different industries may be determined primarily by advantages of proximity to raw materials, labour supplies or markets.

The structure of industry tends to become less competitive through the operation of organizational and legal influences, but more competitive by the constant inflow of new firms, based on new techniques and methods arising from invention, and by changing demands. Thus the railways had a virtual monopoly for nearly a century but are having to meet competition from road and air transport. Recent legislation in Britain on monopoly and restrictive practices has had the effect of making it easier for new firms to break into established markets. Older legislation on patents and copyright still has the effect of maintaining monopolies in some industries, as in chemicals, medicine and others.

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