Friday, October 22, 2010

Just a quick thought:

The main driving force behind capitalism is that competition leads to efficiency yes? (There is also respect to principles such as freedom, independence etc, but anyway).

Essentially this means that it is required that there are atleast two suppliers in each market - in any monopoly it all breaks down - as is the case with natural monopolies (infrastructure - such as power lines, roading, water supply), where we use some form of government intervention.

This seems all very well, as most industries do have more than one supplier. eg most towns have more than one supermarket, more than one cafe, there's more than one auto factory etc

However - it maybe that this need to have more than one supplier has an opportunity cost of otherwise reaped scales of economies. ie. if the multiple suppliers were consolidated, there could be scales of economies to be reaped. If you think you have say 3 cafes, each able to supply 100 people, and each hiring 5 staff, if you consolidated them, you would probably cut down total staff. (of course it's nice for consumers to have choice etc, but this is purely on a economic/financial level).

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