Processes, Complexities and Ecological Similarities
Chapter 10: Variations in the fitness of firms, dynamic economic performance, and vulnerability
In the previous chapter it was shown how moderation of market reactions by suppliers could improve market performance in a dynamic setting. The main purpose of this chapter is to show how variations in the fitness of firms, as indicated by differences in their per- unit costs of production, can improve economic performance in dynamic market situations. Consequently, competition or other measures that result in all firms in an industry being equally fit (for example, as a result of all adopting ‘best business practice’ in their economic operations) can in some circumstances lower the economic performance of an industry. A second matter examined in this chapter is that the evolution of economic systems is making some important industries extremely vulnerable to sudden reductions in the demand for their products as well as vulnerable in other ways. Factors that contribute to this vulnerability include substantial economies of scale, sunk costs, the increased prevalence of networks in economic activity, and intensified market competition resulting in low profit margins.
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