Graduate Thesis Or Dissertation
 

An integration of market structure theory and decision making in selected agricultural industries

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  • This research was designed to test the applicability of commonly accepted market structure theory to firm behavior within agricultural processing industries. The research was primarily concerned with testing the influence of relative firm size on discretionary management decisions. Statements from economic theory concerning structural influences on behavior comprised the hypotheses. Three firms of differing relative size in each of five industries provided data indicating actual behavior. The size variable in market structure (measured by industry concentration) was approached using a reagency approach identifying concentration by the relative size of the firm whose behavior is influenced. This is contrasted with the commonly used algorismic approach (which emphasizes the number of firms in the industry) and physiognomic approach (emphasizing the proportion of industry output handled by a given absolute number of the industry's largest firms). The ratio of actual to quoted prices was inversely correlated with concentration as hypothesized from decreasing demand elasticity. However, evidence was not consistent enough to warrant great confidence in the conclusion. The ratio of firm output to that which would result with alternative competitive selling markets did not show the hypothesized inverse relationship with concentration. Inter-firm dissimilarity of hierarchy of factors which limit output (including structure of the selling market) appeared responsible. The ratio of actual investment to hypothetical competitive investment did not decrease with increased concentration as hypothesized. Frequency of technical innovation failed to vary directly with concentration and flexibility of investment failed to vary inversely with concentration, as hypothesized. The three investment hypotheses were based on theoretical decreasing investment security with concentration. The hypothesized positive correlation between relative promotional expenditures and concentration due to lower cross elasticity of demand was observed, although a similar relationship for product differentiation was not evident. The hypothesized influence of concentration was observed in only one of the eight included decisions, but concentration was observed to influence behavior in other ways. Small firms frequently were price leaders, particularly for downward price changes. A dissimilarity was noted between medium firms' decisions and the more similar small and large firms' decisions, particularly relating to investment per unit of output, proportional unused capacity, preference of working capital to fixed investment, and relative costs of product differentiation and non-promotional selling costs. In summary, market structure, measured by the reagency approach, influenced behavior as hypothesized in only two of the eight analyzed decisions. The pricing process was influenced by concentration more strongly than was price level. Also, medium sized firms behavior shows more consistency than trends over continua of firm sizes. Five alternate hypotheses are suggested for further study: (1) Minimum prices (reflecting minimized per unit costs plus minimum profits) vary inversely with concentration. (2) Small firms exercise downward price leadership in industries of heterogeneous firm size. (3) Ratios of actual to competitive output vary inversely with industry concentration within groups of firms encountering similar hierarchies of constraints. (4) Firms which expand output have less discretion for further relative expansion than those which refused comparable past opportunities. (5) Medium sized firms' philosophies are more growth oriented than those of larger or smaller firms.
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