Joseph Schumpeter, the famed Austrian economist, in discussing capitalism’s market power illustrated the consequences of such power – “creative destruction” of the smaller firms by the larger ones. This phenomenon occurs due to the economy of scale, meaning larger firms leverage the power and innovation of technology, human resources, and other forces to establish cost-efficient production operations. In doing that, larger firms are able to reduce their marginal costs below the prices, thus setting up a direct or indirect monopoly in the market. Unable to compete, smaller firms are eventually forced to leave the market.
Carvajal and Castle (2009) article in The New York Times illustrates such a remarkable case. Please follow the link below to read the full story.
Courtesy: The New York Times
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