Dynamic Explanations of Industry Structure and Performance



Dynamic Explanation of Industry Structure and Performance

Cotterill


Patman Act will have to address the issue of access to
third party programs by independent operators and
smaller chains.

The last option (giving no discounts) may not be
sustainable in the long run if the truly national chains
can go out of the box. They may develop strong retail
brands that supplant or at least significantly curtail time
honored manufacturer brands. Leading manufacturers
and smaller retail chains would both lose position in the
food system.

Whether large chains can succeed in branding depends
upon the trade off between economies of specialization
versus economies of scope in branding food products.
As such it is a fitting end to this paper, a paper that
began with Adam Smith's observations on the economics
of specialization.18 Does a company such as Kellogg’s or
Campbell’s have a competitive advantage in branding
new products in cereal or soups, or does a truly national
supermarket chain have the edge because of scope
economies? If advertising is losing its punch due to new
technologies, then the era of branding food products
with TV media may be over (see Box 2). If a retailer can
establish a uniform high quality reputation across several
categories, the retailer name alone would be the brand,
and it would be transferable to new product categories
(Bell, 2000; Cotterill, 1997).

Box 2: Goodbye to Advertising As We Know It

Thanks to smart new VCR-like machines from Silicon
Valley, the viewer is king, media moguls are fretting, and
advertisers are terrified. A DVR (Digital Video Recorder)
incorporates a hard-disk drive, a modem, and silicon circuitry.
It converts TV programs entering your home via cable,
satellite dish, or antenna into digital bits (up to 30 hours’
worth) that the hard drive can store for you to view at your
convenience... It’s a Trojan horse that could
surprise...advertisers with radical change. That’s because,
yes, DVRs let you skip commercials with ease. Forrester
Research of Cambridge, Mass.,
predicts that 13% of U.S.
households will have one by 2004, an adoption rate faster than
that of VCRs.” (Schlender, 1999)

18 Economies of scale and scope in production and distribution
here, however, are not an issue. Branded food companies, for
example, in fruits, vegetables and cheese have spun off
production to agricultural cooperatives. They buy the product
as a graded commodity and then put their brand on it.
Supermarkets in Europe do the same with their supply chain
management approach.

Underlying this economy of scope argument is the
supposition that truly national chains could develop
extensive managerial cadre that could work with smaller
manufacturers in a supply chain management context to
produce and market truly innovative new foods and high
quality established foods. Many of them may be fresh or
chilled or ready to eat prepared entrees. Truly national
chains could make more effective use of TV media that
is segmented along demographic rather than geographic
lines. These chains would not rely on leading
manufacturer brands to do category management. Their
own management would do it.

Fundamentally, the battle for channel control distills
down to whether large old-line food manufacturers, or
new retailer “product development and marketing”
departments working with smaller possibly more
experimental and entrepreneurial food manufacturers can
be the most innovative and creative. Adam Smith and
George Stigler could appreciate this 21st century version
of the economic organization problem.

References

Adams, W., and L.E. Traywick. eds. 1948. Readings in
Economics
. New York:MacMillan Co.

Allen, F., and D. Gale. 2000. Comparing Financial Systems.
MIT Press, Cambridge, MA.

Andrews, E.L. 2000. The Metamorphosis of Germany Inc.

New York Times March 12. Money and Business:1.

Ashenfelter, O., D. Ashmore, J. B. Baker and S-M. Mckernan.
1998. Identifying the Firm-Specific Pass-Through Rate.
FTC Bureau of Economics Working Paper No. 217,
January.

Bain, J. S. 1968. Industrial Organization. New York:John
Wiley & Sons, Inc.

Baligh, H.H., and L.E. Richartz. 1967. Vertical Market
Structures
. Boston:Allyn and Bacon, Inc.

Bartlett, D. L., and J. B. Steele. 1998. The Empire of the Pigs:
A Little-Known Company is a Master at Milking
Government for Welfare.
Time Nov. 30:52.

Bell, R. 2000. The Challenge of Food Distribution. In The
Global Food Industry-Strategic Directions
, B. Ramsay,
ed. Financial Times Retail and Consumer Publishing
Monograph Series: London.

Berle, A.A., and G. C. Means. 1932. The Modern Corporation
and Private Property
, revised ed. 1968. New
York:Harcourt, Brace & World, Inc.

Bolton, P., and D. Scharfstein. 1990. A Theory of Predation
Based on Agency Problems in Financial Contracting.
American Economic Review 80:93-106.

Chandler, Jr., A. D. 1977. The Visible Hand: The Managerial
Revolution in American Business
. Cambridge,
MA:Harvard Univ. Press.

Charlot, M. 1991. Victoria, The Young Queen. Cambridge,
MA:Basil Blackwell Inc.

Food Marketing Policy Center Research Report No. 53

17




More intriguing information

1. ASSESSMENT OF MARKET RISK IN HOG PRODUCTION USING VALUE-AT-RISK AND EXTREME VALUE THEORY
2. The name is absent
3. The name is absent
4. Investment in Next Generation Networks and the Role of Regulation: A Real Option Approach
5. The name is absent
6. Educational Inequalities Among School Leavers in Ireland 1979-1994
7. The name is absent
8. Artificial neural networks as models of stimulus control*
9. Dynamic Explanations of Industry Structure and Performance
10. Staying on the Dole
11. Partner Selection Criteria in Strategic Alliances When to Ally with Weak Partners
12. The name is absent
13. Evidence-Based Professional Development of Science Teachers in Two Countries
14. Regionale Wachstumseffekte der GRW-Förderung? Eine räumlich-ökonometrische Analyse auf Basis deutscher Arbeitsmarktregionen
15. Applications of Evolutionary Economic Geography
16. MANAGEMENT PRACTICES ON VIRGINIA DAIRY FARMS
17. The name is absent
18. Spectral calibration of exponential Lévy Models [1]
19. Benchmarking Regional Innovation: A Comparison of Bavaria, Northern Ireland and the Republic of Ireland
20. The name is absent