The Economics Of Industries And Firms

The Economics of Industries and Firms The Economics of Industries and Firms THEORIES, EVIDENCE AND POLICY Malcolm C.Sawyer SECOND EDITION First published 1981 by Croom Helm Ltd This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Second Edition 1985 Reprinted 1991 by Routledge 11 New Fetter Lane, London EC4P 4EE 29 West 35th Street, New York, NY 10001 © 1981 M.C.Sawyer © 1985 M.C.Sawyer (Second Edition) All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data Sawyer, Malcolm C. The Economics of Industries and Firms: Theories, Evidence and Policy — 2nd ed. 1. Industrial organization (Economic theory) I. Title 338 HD2326 ISBN 0-203-98006-9 Master e-book ISBN ISBN 0-415-06604-2 (Print Edition) CONTENTS List of Abbreviations Preface Part One: Economics of Industry vi viii 1 1. An Introduction 2 2. Structure, Conduct and Performance: An Overview 6 3. Industrial Concentration 18 4. Cost Conditions and Economies of Scale 35 5. Conduct and Behaviour 51 6. Industrial Structure and Profitability 59 7. Advertising 75 8. Innovation, Invention and Industrial Structure 89 9. Prices, Price Change and Oligopoly 99 10. Part Two: The Structure-Conduct-Performance Approach: A Critique Economics of Firms 110 115 11. Managerial Theories of the Firm 116 12. Growth of Firms: Speed and Scope 135 13. Acquisitions and Mergers 148 Part Three: Economics of Policy 165 14. The Welfare Loss of Monopoly 166 15. Competition and Intervention 175 16. Aspects of Recent Industrial Policy 190 Bibliography 213 v Subject Index 226 Author Index 230 ABBREVIATIONS A AC ai C CRn EC e eA eg g HI i K M m.e.s. N.O. q r S si v V W Advertising expenditure Average costs The degree of interdependence indicated by the expected response of other firms’ output to firm i’s s output change Costs (total) n-firm concentration ratio Executive compensation Price elasticity of demand Advertising elasticity of demand ‘Goodwill’ elasticity of demand Rate of growth Herfindahl index (sometimes called Herfindahl-Hirschmann index) Rate of discount/interest Capital stock Profit margin on sales Minimum efficient scale Net output output Retention ratio Sales Market share of firm i Valuation ratio Market value of firm Wages and salaries Standard deviation Rate of profit (on capital) Total profits vii PREFACE TO THE SECOND EDITION The second edition retains the structure and purpose of the first edition. The changes in the second edition are mainly those of updating the material and extending the coverage. There has been updating of the empirical work surveyed and of the policy discussions in Chapter 16. The extended coverage brings in discussion on multinational enterprises, price behaviour, vertical integration and diversification, organisational structure of firms and the theory of contestable markets. I am grateful to re