Vapulah

Excess capacity may be dictated by the technology. If the only efficient way to increase capacity is in plants of relatively large size, a firm will have to maintain some excess capacity or risk being caught short by an unexpected increase in demand.

Excess capacity may also be dictated by marketing considerations. Where distributors’ services are essential to commercial success and manufactures do not integrate forward into distribution, a manufacturer will have to convince distributors to support his product.  Excess capacity will demonstrate a commitment to distributors that the firm that has invested in the capacity is in the market to stay. [Read the rest of this entry...]

I: Alcoa

Before World War II, the aluminum company of America Alcoa was the only domestic U.S. producer of aluminum ingot from ore. It faced some competition from recyclers who produced aluminum ingot from scrap aluminum. Alcoa owed its dominant position to licenses that allowed it to use a low – cost production technique under patent protection, bit it maintained its position after the basic patent expired in 1909. In a suit alleging monopolization of the aluminum ingot market the government accused Alcoa of purchasing bauxite deposits beyond its own needs to deny potential competitors access to material necessary for the production of aluminum ingot. The government also alleged that Alcoa had signed contracts with public utilities designed to prevent competitors from purchasing low – cost electric power production of aluminum ingot requires a great deal of electric power. In the view of the courts the government did not succeed in proving that Alcoa had acted to preserve its monopoly. [Read the rest of this entry...]

Product differentiation is another strategy for market dominance. R and D may aim at the development of distinctive product varieties. Advertising and another sales effort can be used to cultivate a favorable brand image among final consumers and distributors. The resulting brand loyalty can create a dominant position because it raises entry costs for rivals who will have to either overcome or duplicate the brand loyalty in order to compete successful.

For consumer goods industries, vertical integration from manufacturing to wholesales and retail distribution facilities product differentiation, if only because it promotes the flow of information from consumers of producers. A firm that controls access to final consumers is in a strong position with respect to rivals, especially if that access cannot be duplicated without some sunk investment and some passage of time. [Read the rest of this entry...]

If a dominant firm manufactures consumer goods, it may integrate forward into wholesale and retail distribution. By integrating forward, the dominant firm can guarantee itself secure access to the final consumer and control efforts to differentiate its product.

Backward integration into the production into the production of the input ensures supplies and reduces the cost of coordinating activities at different stages of production undoubtedly a factor in the vertical integration of steel firms and iron mines. But a decision to integrate, even it made for reasons of efficiency, will have implications for the entry decision of rivals. A decision by a dominant firm to integrate vertically can place an entrant at a cost disadvantage and increase its sunk entry costs. U.S. steel’s control of iron supplies, for example, is thought to have played a pivotal role in maintaining its position during its long dominance of the steel industry. [Read the rest of this entry...]