INTRA-INDUSTRIAL PLANNING AND CONTROL WITH AN APPLICATION TO THE KOREAN CEMENT INDUSTRY

A model of intra-industrial planning is developed to provide a link between inter-industrial (sectoral) planning and firm-specific (project) planning. The model refers to a growing industry that is characterized by economies of scale, embodied technological change, and a homogeneous product.; The design of an optimal market structure is the model's main feature, where an industry's market structure is represented by the number and market shares of firms. The optimal market structure is crucially dependent upon costs associated with government control of an industry and the firm's reaction to that control, which we define as system cost. System cost includes the information-gathering and other regulatory costs of controllers, the lobbying costs and strategic resource misallocations of firms, and any externalities which may affect society.; Among alternative industrial organization schemes, the MC-pricing monopolistic scheme is non-inferior to any other scheme, when system cost is zero. However, when system cost is positive, the optimal number of firms is not necessarily one. Also, for positive system cost, the symmetric market is superior to the asymmetric one, whenever the optimal number of firms is greater than one.; Uncontrolled market interaction of firms usually results in outcome different from the optimum. In addition, when the market is asymmetric, there is a tendency for the degree of asymmetry to increase over time. To reduce asymmetry, certain control schemes are recommended. Among these, credit control is examined in detail.; The Korean cement industry is congenial with our theoretical model. It has experienced the world's highest growth rate and fastest technological innovation over the last two decades. However, by allowing the emergence of a dominant firm, it became exposed to a structural problem, which eventually resulted in government-sponsored cartelizaton. This case study demonstrates the applicability of intra-industrial planning and provides evidence that the symmetric market is superior to the asymmetric market.