Optimum Plant Size in United Kingdom Industries

The survivor technique for estimating the optimum size of firms (or plants) derives from the assumption that the most efficient size of firm (plant) will perform best in the market place, and hence over time, with other things (such as technology) remaining unchanged, occupy an increasing share of the market.2 In applying the technique, firms (plants) in an industry are classified into size classes at two dates; and size classes with increased market shares are identified. If one size class alone has increased its share of the market, or if the size classes which have increased their share lie within a continuous range, then (subject to predetermined tests designed to reduce the risk of drawing inferences from random movements) that size class or size range is said to constitute the optimum size of firm (plant) given the existing size of the market. The concept of efficiency or optimality underlying the use of the survivor technique is different from and wider than that underlying the traditional analysis in the theory of the firm. Flexibility in the face of uncertainty and success in labour relations, if related to size, are among the matters which could affect the results produced by the survivor estimates. The optimum or the minimum efficient size of firm (plant) estimated by the survivor technique may well differ from that implicit in the long-run average cost curve of traditional analysis. The wider concept of efficiency may well be more relevant for the study of industrial structure and for policy purposes. Various criticisms have been levelled at the interpretation of survivor estimates, in particular by Shepherd [5]. The main criticism is that success in the market often depends on factors other than those which would normally represent genuine welfare gains. These factors include, for example, restrictive agreements and the control of scarce resources. But while such factors may affect survivor estimates forfirm sizes,3 they

Agricultural economics · Business · Economics · Kingdom · Business Strategy and Innovation · Economic Theory and Institutions · Firm Innovation and Growth · Geology

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