The Economics Of The Brick Cycle and Its Effects on Firm and Industry Structure
The reason why firms in the brick industry should firstly seek to form larger groupings within the industry and secondly why firms are prone to take-over from larger interests outside the industry, are discussed in the next section.
a) Minimum Efficient Scales of Production
As explained in the previous chapter, m.e.s. Levels are only important in the industry in terms of new plants. It is only in the fletton industry that m.e.s. Levels represent a sizeable proportion of total output and are thus likely to effect industry concentration levels more quickly here. Such levels of m.e.c. Do not however explain why LBC was taken-over in 1983, since the firm already controlled 100% of the fletton market.
M.e.s. levels in the non-fletton industry represent only 2.5% of total non-fletton output. These are large enough only to have a moderate effect on market concentration levels in the long-term. As such, their existence can partly explain the increase in concentration in the non-fletton industry that occurred between 1950, when the 4 largest firms in the sector controlled 16% of the total market (33% of the non-fletton) and 1982 when it controlled around 30% of the total brick capacity (around 62% of non-fletton).
b) Economies of Scale Available to Multi-Works Firms
Pratten was able to find evidence from within the industry that economies from multi-works operations were possible by reducing unit overhead costs which were thought to represent 7.5% of total costs. The firm supplying the information was said to have cut its unit overhead costs by 25%, representing about 2% of its total unit costs, when the firm doubled its size by merging. 1
The M & MC were told that its sales network, which accounted for 2% of total costs, 2 was able to sell all the additional bricks, made available by its take-over from 1967 onwards, without taking in any more staff. The M & MC were also supplied with other information regarding economies of scale with LBC. These included reduced engineering costs, reduced R & D costs and some savings on transport resulting from fewer empty lorry journeys. No estimates as to the size of these cost savings were made however.
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