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 [...]
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 [...]
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 [...]
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 [...]
