Firms Faced with Rivals and Advantage of Location
The location of firms depends on factors such as cost, quality of
inputs and even their availability. These factors can vary from place
to place so this gives firms an incentive to locate in the lowest cost
locations with other things being equal. The location for most firms
is highly dependent on labour costs and raw material costs as these
are naturally less mobile place to place and almost completely
immobile country to country, capital does not have as much effect on
the location of a firm. Differences in labour costs are one
determinant of location but on a regional scale in the UK there is not
a substantial difference. The importance of raw materials as a factor
determining location can be a problem as on some occasions the
availability of raw materials dictates the location of a firm e.g.
coal mining. With the improvement of transport systems and with raw
materials accounting for a smaller proportion of total costs, firms
are now more able to choose locations based on other criteria. Lower
costs enable firms to make more profits, these lower costs also allow
for firms to be more competitive to gain a greater market share.
Another factor which influences costs of operating in different
locations is the presence or absence of agglomeration economies.
Agglomeration economies are a form of economies of scale. If a group
of firms are in the same industry or involved in similar types of
activity are located near to each other they may be able to secure
cost saving which is available to all firms but cannot be exploited by
one single firm. These savings can arise from many sources one ...
... middle of paper ...
...rences, a Nash equilibrium
is unlikely to occur in this situation.
Location can give firms a competitive advantage but not on entirely on
its own, a location can initially give a firm an advantage but in the
long run other firms are likely to follow. If firms want to be
competitive they need to consider other strategies such as trying to
be cost leaders or try and produce a better quality product, advertise
or differentiate their product from other products. Firms end up
satisficing, unless inside information is known. If one firm acts
first others tend to follow and crowd out the market.
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Why and how do policy-makers and practitioners intervene to encourage new firm formation and development?
Homogeneity of products is depicted as goods and services that are same or comparable in nature. Since goods are homogenous, firms feel committed to vie for any relative point of interest that they can increase over their opposition. The more homogeneous the product in any industry the further we would expect to see competition (Spar and Yoffie 155). Another factor is transaction costs, the more difficult and time consuming a relocation will be the less likely it will occur. The stickiness is the resistance of a cost to change, in spite of changes in the more extensive economy recommendation of an alternate cost is ideal. Generally, it implies that the costs charged for specific goods and service are hesitant to change despite changes in input cost or demand patterns. Since, most firms cannot switch plant locations freely as most, it will bring around considerable expenses from moves crosswise over fringes. The higher these expenses, the stickier investments will prove to be and stickier investments will evidently decrease the momentum for the race to the bottom. These factors contribute greatly to differences in industry structure and incentives. In addition, there also exist invisible costs such as hiring and training new employees, building contracts etc. Prerequisites must be met, for example,
In order to answer the question “How Do Oligopolies effect the Beverage Industry?” we must first understand what an Oligopoly is. An Oligopoly is a market form in which a market or industry is dominated by a small number of sellers. An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market. So what exactly does this mean? To put this into perspective an Industry, such as the Beverage Industry, is composed of various sellers. However there are two main companies that control the Industry, they are Pepsi Co. and The Coca-Cola Company. Although there are several other companies such as
Princeton, 1963. Hailstone, Thomas and Rothwell, John. Managerial Economics, pp. 93-95. Prentice Hall, 1993.
Competition should not be enforced because it makes people feel too much stress and like winning is all that matters, makes the event too intense and no fun, and It makes people feel less skilled and lowers self-esteem. Competition does nothing but bring down a person and cause way too many problems in life. Winning and berating someone else is not all that matters and having fun in the event is.
There are many industries. Economist group them into four market models: 1) pure competition which involves a very large number of firms producing a standardized producer. New firms may enter very easily. 2) Pure monopoly is a market structure in which one firm is the sole seller a product or service like a local electric company. Entry of additional firms is blocked so that one firm is the industry. 3)Monopolistic competition is characterized by a relatively large number of sellers producing differentiated product. 4)Oligopoly involves only a few sellers; this “fewness” means that each firm is affected by the decisions of rival and must take these decisions into account in determining its own price and output. Pure competition assumes that firms and resources are mobile among different kinds of industries.
In a capitalistic country with a free market, foreign competition is expected. This is no exception for the automobile industry where America competes with its various rivals. Competition from elsewhere encompasses that from Italy, Germany, and of course, the renowned Japan. The Japanese vehicle industry is especially competitive; according to the Automotive News Data Center, five out of the ten best selling vehicles of the year are Japanese vehicles. This data applies to the U.S. market over the first 9 months of the year. Expectedly, the automobile industry is an important and significant market. Motor vehicles are a major form of transportation as many people in the U.S. own at least one car.
Global competition is changing the environment facing most companies today. As trade barriers fall and transaction costs decline, new global competitors are entering previously more isolated domestic markets. In response to this intensified competitive pressure, local companies are pushed to enhance performance by innovation and adopting process and product improvements.
13. Romano, P.L. "Trends in Management Accounting." Management Accounting, August 1990, pp. 53-56. 14.
In today's business environment, there is sustained pressure for companies to maximize productivity in order to be competitive in the marketplace. Many businesses are moving a variety of activities, such as manufacturing and product development, to countries with low labour costs. They are also opening up sales channels in many new markets. The resulting global organizations need to structure themselves, so that they can effectively manage operations across numerous locations. This paper looks at how the organizational structure of a global company influences decision-making at the regional level, and how this can affect the business performance. This paper will:
The Effect of the Development of Large Firms on Society Many firms choose to expand in size because of the cost and market share benefits the firms can reap. However, the development of large firms may not always be of benefit to consumers, and the advantages and disadvantages will be discussed in the following essay. Because larger firms such as Shell Petrol Station are able to experience internal economies of scale through lower unit costs, many of the cost savings are then passed on to the consumers through lower prices. Hence consumers are then able to enjoy greater consumer surplus, defined as the difference between the maximum price that a buyer is willing to pay for a good or service and the actual price paid. As seen from the diagram below, the marginal cost curve shifts to the right such that the new marginal cost = marginal revenue equilibrium lowers the price and increases the output level compared with the initial equilibrium.
means they save a lot of money on wages because people who need a job
Before we start I think it is important that I clarify what we mean by
•Perfect competition: This happens when lots of small firms compete against one another. These firms are in a very challenging industry to manufacture the socially optimum output level at a very small cost to the firm.
Mainly advantages of location decide the structural growth of the industries in the economy. More number of states in the country faces the problem of advantage location. Similarly, the agriculture sector also suffers from natural calamities and other disturbances. The dependence on agriculture varies considerably across the states.