3. The following facts characterize the furniture
industry in the United States:39
a. The industry has been very fragmented, so that
few companies have the financial backing to
make heavy investments in new technology and
equipment.
b. In 1998, only three U.S. furniture manufacturers
had annual sales exceeding $1 billion. These
firms accounted for only 20 percent of the market
share, with the remainder split among 1,000
other manufacturers.
c. Capital spending at one manufacturer,
Furniture Brands, was only 2.2 percent of
sales compared with 6.6 percent at Ford
Motor Company. Outdated, labor-intensive
production techniques were still being used
by many firms.
d. Furniture manufacturing involves a huge number
of options to satisfy consumer preferences,
but this extensive set of choices slows production
and raises costs.
e. Small competitors can enter the industry because
large manufacturers have not built up
any overwhelming advantage in efficiency.
f. The American Furniture Manufacturers
Association has prepared a public relations
campaign to “encourage consumers to part
with more of their disposable income on
furniture.”
g. In fall 2003, a group of 28 U.S. furniture manufacturers
asked the U.S. government to impose
antidumping trade duties on Chinese-made bedroom
furniture, alleging unfair pricing.
h. The globalization of the furniture industry
since the 1980s has resulted from technological
innovations, governmental implementation
of economic development strategies
and regulatory regimes that favor global investment
and trade, and the emergence of
furniture manufacturers and retailers with
a capacity to develop global production and
distribution networks. The development of
global production networks using Chinese
subcontractors has accelerated globalization
in recent years.
Discuss how these facts are consistent with the
model of perfect competition.