Hi Chuz,
There seems to be an article of faith among corporate CEOs - here as well as in Asia - that if a manufacturing firm becomes bigger, it will benefit from economies of scale. As I'm sure you know, economies of scale means per-unit costs decline when you produce in larger volume. It seems doubtful to me that substantial scale economies exist in pc manufacturing. I haven't studied the issue and my view is only impressionistic, but I base it on the following:
1. In industries where great scale economies are present, small firms are at a cost disadvantage and cannot compete. An example is the auto industry. Firms like AMC and Studebaker, which long ago became defunct, weren't necessarily mismanaged, they were simply too small to reach minimum efficient scale. In industries where substantial scale economies exist, there will be high concentration and relatively few firms.
2. In pc manufacturing it is true that the industry is becoming more concentrated. Yet the fact remains that a lot of smaller firms still exist and aren't so easily pushed aside. This becomes apparent in reading John Rosser's post on PC Magazine's newest ratings of PC companies. The following portion is noteworthy (sorry, John, for taking liberties with your nice post.):
-----------------------------
Desktops
A: Dell
Hewlett-Packard
IBM
B: Compaq
Digital
Gateway
Micron
Midwest Micro
Quantex
Sony
C: Apple
CompuAdd
DTK
Everex
NEC
Toshiba
Unisys
ZEOS
D: Acer
AST
AT & T
CompuDyne
Packard Bell
Tandy
Zenith Data Systems
Notebooks:
A: Dell
Gateway
B: IBM
Micron
C: Acer
Apple
Hewlett-Packard
Hitachi
NEC
Toshiba
D: AST
Compaq
Texas Instruments
WinBook
Zenith Data Systems
--------------
What's interesting is the large number of firms represented, some of them with only meager market share. Bear in mind too that the list is by no means exhaustive. If substantial scale economies existed, the smaller firms would probably have disappeared a long time ago. Of course, we don't know how many of them remain profitable. Some may be hanging by a thread. Come to think of it though, the largest firms - with the exception of Dell - aren't exactly burning up the track either. The conclusion I draw is that in PC manufacturing, firms with fairly great disparities in size can coexist. Using the jargon of economics, the long run average cost curve for the industry seems to be flat rather than downward sloping. Time will tell if this conjecture is warranted.
Geoff
P.S. Thanks for all your great posts on the ASP issue.
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