Processes, Complexities and Ecological Similarities
Chapter 11: More on differences in the fitness of firms, market selection and product variety
It was shown in the previous chapter that diversity in the economic fitness of firms (as for example, reflected in differences in their per- unit cost of production) can add to economic efficiency by facilitating the selection of the fittest firms as economic conditions change and promoting convergence to a new market equilibrium. But the selected firms are usually only the fittest in the short- to- medium term. Markets are unlikely to be very efficient in selecting firms that will be most efficient in the very long term because they operate on the basis of relatively short- term considerations (see Chapter 6). Nevertheless, as will be demonstrated in this chapter, market completion can also fail to select the most efficient firms for the short- to- medium term even when they differ in their economic fitness. This can occur in industries in which either individual firms or the whole industry experience economies of scale and/or economies of scope.1
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