West African Trade: A Study of Competition, Oligopoly and Monopoly in a Changing Economy

By P. T. Bauer | Go to book overview

CHAPTER 9
CONCENTRATION, MARKETING ARRANGEMENTS AND COMPETITION (I)

1. THE DEGREE OF CONCENTRATION AND THE BARRIERS TO ENTRY

The argument of the previous chapter suggests that new entry into West African trade may be difficult because capital requirements are often heavy and because there appear to be certain definite though limited economies of size. These forces, together with the advantages accruing from an early start, tend to bring about a measure of concentration. This in turn tends to perpetuate the strength of the large firms by conferring on them certain advantages which impede and inhibit the entry of new firms and the growth of smaller firms.

In earlier chapters it has been shown that by the middle of the 1930's one firm together with its subsidiaries and affiliates handled about onethird of the external trade of West Africa, while some five or six firms were responsible for about three-fifths of the total. In standardized staple imports and in the principal export products the concentration was appreciably larger. Moreover, groups of the largest firms frequently acted in concert. There were comprehensive market-sharing agreements in the purchase of the principal export crops and in the sale of imported merchandise.

A degree of concentration of this magnitude in such an extensive trade may raise the ordinary barriers to new entry and the expansion of small firms in four principal ways. First, firms may hesitate to start operations or expand in a trade in which they may have to face accentuated competition directed against them by powerful established firms, possibly acting in concert for the purpose. Newcomers have not only to reckon with the usual hazards of a risky competitive market, but also with the specific risk of incurring the commercial animosity of large firms or groups of firms who see in the newcomer a potential threat to their position. Secondly, there may be strategic advantages residing in the control or partial control by integrated firms of several successive stages of distribution. Thirdly, large entrenched firms or groups of firms may find it easier to receive supplies or to secure preferential treatment from important overseas suppliers, and this places less favoured firms at a distinct disadvantage. Fourthly, the presence of large firms or groups of firms may influence official policy and result in measures strengthening their position. These factors might enable

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