Industry Structure

Industry Structure

Industry, Structure of, its composition by size and number of firms and the degree of independence or integration between them. An industry may be defined as a group of firms producing identical goods, i.e. which the consumer regards as being perfect substitutes for one another although they may be different physically. It might be extended to relate to firms which make a product by the same process. But there is usually a range of firms within what is termed an 'industry' in, for example, the census of production, making similar if not identical products by similar methods. If the goods are in close competition with one another the firms may be said to be part of the same industry, just as they may be in competition for the same kind of labour and materials. In practice the answer turns on the nature of the problem under investigation; sometimes a firm may be regarded as part of the car industry, at other times as part of the engineering industry, and so on.

The structure of industry varies with the nature of the product and of the markets in which it is sold, the materials it uses and the technical conditions in which it is produced. In Britain some industries, such as coal, gas, electricity, railways, are public monopolies established under nationalizing legislation. In others the number of firms is very few, as in industrial gases, where the bulk of the output comes from the British Oxygen Company. In others there are many firms of different sizes, as in paint. The retail trade consists of multiples, department stores, co-operative societies and single-shop traders.

A number of influences determine the structure of an industry and how it will affect the position of the individual firm within it. If there are marked gains from very large-scale operation, if the capital costs of setting up new firms are high, if a specialized 'know-how' is required, or if a highly specialized labour is employed, the number of firms will tend to be few or relatively little affected by the possibility of new entrants. In the limiting case of a single-firm monopoly, the firm and the industry coincide. If the industry is competitive the older economists discussed its structure in terms of a 'representative' firm typifying all the firms and the industry itself: more recent economists have used the concept of 'optimum' firms defined as those with the lowest long-run average costs. In a competitive market the industry will tend to be one of relatively small firms each being pushed to operate as efficiently as possible.

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