Pioneering work in this area has been done by E. Executives then need to make sure that their organizations are aligned behind it to produce sustainable performance. Unfortunately, many economists tend to measure structure by concentration. How does Dubai generate revenues to support the state, given that corporate and personal taxes are negligible? For instance, if we had drawn Figure 20. These theories can be adapted to examine the behavior of firms and industries. Most executives understand the mechanics of making the structuralist approach work, so this article will focus on how to align an organization behind the reconstructionist approach to deliver high and sustainable performance.
We further assume that there is a strong belief among potential entrants that established firms will maintain their output in the face of entry, and permit the entrants to capture any portion of the market they can. Hazari did for the private corporate sector in India as a whole. See Industrial Market Structure and Economic Performance, F. Citizens receive free plots of land from the government along with interest-free loans or grants to build homes on the outskirts of the city. This paradigm postulates that the market structure determines the market conduct, which then sets the performance of the market. In some industries, firms have very few options and face many constraints.
The challenge for leaders, therefore, is to ensure that a robust debate takes place on what the right strategic approach for each business should be and then to enter into the spirit of the framework to develop the right strategy for that unit—be it a structuralist competitive strategy model or a reconstructionist blue ocean strategy model. Some of these options may enable firms to obtain competitive advantages. The index is based upon the degree to which price deviates from marginal cost. Obviously, H would vary between 0 and 1. This view gets ample support from both the proponents and opponents of monopoly.
As Paul Samuelson has rightly commented, a non-firm concentration ratio could equal 100% a pure monopoly. There are three factors that determine the right approach: the structural conditions in which an organization operates, its resources and capabilities, and its strategic mind-set. In these situations, an organization should adopt a reconstructionist approach and build a strategy that will reshape industry boundaries. An organization with an innovative bent and sensitivity to the risks of missing future opportunities will be more successful in adopting a reconstructionist approach. It is to the concept of market concentration that we turn now. Attributes of the industry structure within which a firm operates define the range of options and constraints facing a firm. In monopolistically competitive industries, there are large numbers of competing firms and low-cost entry and exit into and out of the industry.
As economies of scale assume greater and greater significance, the firms that will operate in that industry are likely to be larger. If the conduct of concentrated industries resembles closely that of a monopolist, such industries would be expected to earn excess or super-normal profits. The two most commonly used summary measures of concentration are the Gini Coefficient and the Herfindahl concentration index. Rather, firms in this type of industry are successfully implementing product differentiation strategies-strategies that will be discussed in more detail in Chapter 7. The marketing team, for example, may dwell too much on the value proposition and pay insufficient heed to the other two.
So there is no further expansion of output by existing firms. In effect, this amounts to doing for particular industries what Prof. These factors influence the method of analysis of markets among them the Structure, Conduct ad Performance S-C-P model, a standard tool for the analysis of markets. The Structure-Conduct- Performance Paradigm 5. Their children go to nearby Arabic schools that provide Islamic religious teachings along with modern education. This obviously clashes with the objective of industrial growth. Thus, H would be 1.
The structure-conduct-performance model is summarized in Figure 3. When executives develop corporate strategy, they nearly always begin by analyzing the industry or environmental conditions in which they operate. However, one final point may be noted before we proceed further; the relationship between pure size and pricing behaviour is tenuous at best. In general, the size of a firm may be measured by the volume of its output or sales, the number of people employed in the firm, its share capital, its assets etc. Its profit proposition has allowed the government to benefit and extract revenues from those investors.
This demands elimination of unfair and restrictive trade practices. Participants need only buy a red nose for £1 or raise money by doing silly antics that friends sponsor. In this article they explain the key differences between the two approaches, identify the circumstances under which each one is appropriate, and discuss cases of blue ocean strategies. As a consequence, there is a danger of overemphasizing the importance of concentration. But if profits are abnormally high for a considerably long period of time there is the real possibility of a large firm from another industry being induced to enter the industry. . Studies made by George Stigler and others indicate that economies of scale set a limit to the number of firms that may exist in an industry.