Economics Dictionary of ArgumentsHome
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| Economies of scale: Economies of scale refer to the cost advantages that firms experience as they increase production. As output grows, the average cost per unit decreases due to factors like spreading fixed costs over more units, bulk purchasing, and improved operational efficiency. This allows larger firms to produce goods more cheaply than smaller competitors. See also Competition, Revenue, Cost, Business structure, Business, Market concentration._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Dictionary of Arguments. | |||
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Economic Theories on Economies of Scale - Dictionary of Arguments
Henderson I 64 Economies of Scale/Economic theories/Henderson/Globerman: For many decades, the "Structure-Conduct-Performance" (SCP) paradigm* dominated antitrust theory and practice. The SCP paradigm basically maintained that if a relatively small number of firms has a large market Share, those firms will refrain from competing with each other, particularly with respect to reducing their prices. As a consequence, consumers will pay higher prices and producers will earn higher profits than would be the case if a larger number of firms each had a relatively smaller market share. >Market concentration, >Antitrust laws. Henderson I 67 The SCP paradigm could be a two-way phenomenon. That is, increased concentration could lead to higher prices associated with limited competition at the same time that the Iower costs and other advantages enjoyed by large firms could contribute to increased concentration over time. Both phenomena would result in a positive relationship between concentration and profitability, albeit with much different implications for antitrust policy. Peltzman: Peltzman (1977)(2) helps disentangle the nature of the empirical relationship between concentration and profitability by examining how concentration is related to price on the one hand, and to average cost on the other. In Peltzman's framework, the relationship identified between concentration and price reflects the ability of firms to charge above-competitive prices, while the relationship between concentration and average cost reflects effciency advantages enjoyed by firms in concentrated industries. Based on his empirical findings, Peltzman argues that a positive relationship between concentration and price can be identified. However, it is dwarfed in statistical importance by the relationship between higher concentration and Iower average cost. >Sam Peltzman, >Antitrust laws/Policy of the US. * For an overview of this paradigm, see Bain (1968)(1). 1. Bain, Joe S. (1968). Industrial Organization. Wiley. 2. Peltzman, Sam (1977). The Gains and Losses from Industrial Concentration. Journal of Law & Economics 20, 2: 229-263._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. "Vs" indicates differences in content, not necessarily the chronological progression of a controversy. If a German edition is specified, the page numbers refer to this edition. |
Economic Theories Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
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