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Economics Essay

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How can technological change affect the structure of the market?
Technological progress influences market structure in many different ways.
The number of firms in an industry-in some industries, new technology allows the number of firms to increase. E.g. - technology reduces the minimum scale of production; means there can be many more firms in the industry than before. On the other hand technologies can lead to greater economies of scale with a higher minimum scale of production; the number of firms is likely to fall. The number of firms in an industry is likely to increase if barriers to entry fall, for example the internet has allowed a large number of small retailers to enter the market at a time when small shops are in decline because of the economies of scale being exploited by supermarket chains.
Product homogeneity and non-homogeneity-in some markets, particularly goods markets, new technology is backed by patents and copyrights. Firms can create unique non-homogeneous goods for which they typically charge premium prices for. Classic example is the pharmaceutical industry, companies spend billions on research and development, and then when they make a breakthrough, they sell the drug into a mass market with no clear competitors.
Knowledge-new technologies tends to be protected by patents, where this occurs, there is a lack of knowledge in the market. However in other circumstances, knowledge may be perfect. E.g. - the container has transformed transportation, especially in sea exports. Containers are a fairly new technology.
Interrelationships within markets-in some markets, new technology has promoted independence of firms. In the container transport market, the action of one firm does not have an impact on other firms.
Barriers to entry-new technology can break down barriers to entry. With internet retailing, e.g. start ups no longer need physical premises on a high street. They can operate their businesses out of their front room. Capital costs and...

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