Science, Technology, And Development by Atul Wad

Author:Atul Wad [Wad, Atul]
Language: eng
Format: epub
Tags: Social Science, General, Sociology
ISBN: 9781000310887
Google: mgeiDwAAQBAJ
Publisher: Routledge
Published: 2019-07-11T04:57:29+00:00

Market Structure and Industrial Organization

According to Forsyth (2) market structure can be defined "in terms of the degree of economic power associated with the buying or selling of a good or service," both for product and factor markets. He also considers other structural characteristics such as form of ownership of enterprises, source of finance, source of technical know- how, extent and direction of government intervention, and degree of integration into the international economy. Hertjee (3) considers that "market form is generally taken to comprise the objective economic characteristics of the market, which in particular determine the power relationships between companies," and includes the number of firms, the nature and degree of product differentiation, the nature of barriers to entry, and vertical integration and diversification among the main characteristics of "market structure."

For the purpose of the present essay the terms market structure and industrial organization encompass the characteristics that refer to the interactions, interrelations and relative market power of the firms concurring in a particular industrial branch. Following the approach proposed in the STPI methodological guidelines (4), an industrial branch is defined as the collection of firms engaged in the production of similar goods oriented towards a particular market, and includes also those productive and service units that provide inputs to these firms and are closely related to them.

According to the model proposed in this essay, the characteristics defining the market structure and industrial organization of a given branch are:

(i) Size of the market, which refers to the total volume of sales and its rate of growth. In developing countries the size of a particular market is usually smaller than its homologue in a developed country, where most production technologies originate. When examining market size it is important to differentiate between market growth rates that are determined exogenously to the branch, for example, by population growth or changes in income distribution, and those that can be affected by the behavior of productive units in the branch, particularly through product differentiation and advertising.

(ii) Degree of concentration, which refers to the size distribution of firms and the proportion of total output accounted for by the larger ones. It is usually measured through indices such as the percentage of total production represented by the output of the four or eight largest firms. In several branches this characteristic is closely associated with the degree of transnationalization of the branch, which refers to the percentage of total output controlled by foreign firms.

(iii) Vertical integration, which refers to the degree of control over inputs exerted by the firms in a given branch. Strictly speaking, this is a characteristic of the firms that participate in more than one industry, and where one of these industries provides raw materials or intermediate products to the others. Two other concepts closely related to this characteristic are the existence of a network of potential suppliers and the degree of articulation of the branch with the rest of the industrial structure. In developing countries where there is a low degree of articulation among

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