Some economic considerations pertaining to the conduct and performance of large scale and small scale enterprise in factor markets

Abstract

This thesis begins with the view of some writers that factor markets may have been relatively neglected in economic analysis, and that given trends in industrial concentration and the possible backward market effects, this could represent a significant oversight. The overall objective is to analytically assess the relevance of this view. Within this analytical framework, the importance attached to the dynamics of factor market trading relations necessitates the consideration of both their economic and organisational/behavioural implications. The thesis starts with a general verification of the increasing trend in industrial concentration and then examines the role attributed to factor market considerations. The apparent benefits of large scale purchasing leads to a review of economic theory which examines the conduct and performance implications of the various types of factor market structures. Relative bargaining power is identified as a prime determinant of outcomes in imperfectly competitive trading relations, and it is presented as being a function of organisational dependency. A number of joint economic and organisational/behavioural determinants of dependency are reviewed. This review also indicates that large buying units may use their relative bargaining power to reduce uncertainty in the acquisition of inputs. These dynamic aspects of market conduct are discussed under the heading of 'vertical quasi-integration'. The analysis then changes focus and places the dominant large buyer/smaller supplier situation into a wider macroeconomic context. This involves the conceptualisation of the dominant firm as a 'propulsive' or key industry fostering industrialisation and through its role as a growth pole, regional development. The need to consider the dynamic, organisational facets of trading relations in industrial linkage studies is reiterated. The thesis concludes by confirming the need for more information about factor markets, and it offers a relevant conceptual context and investigative framework for meeting that need.