The Effects Of Scientiifc Progress On The Cost Structure Of Companies And The Market Structure

The price war between physical stores and online stores has focused ourattention again on the area of industrial organization theory. Huge sunk costs in thetraditional theoretical analysis endow the manufacturers with a certain degree ofmonopoly power. Either from the view of the output competition or from the viewof price competition, sunk costs send out a strong signal, that manufacturers withsunk costs will compete to the end. Knowing this signal, the potential entrants willconsider it as a credible commitment and then select the no-entry strategy. This isthe entry barrier effect of sunk costs.This kind of entry barrier does no good to the development of the industry orthe economy. In fact the monopolists will take a monopoly price and snatch theconsumer surplus. And to maintain their status of monopoly, they will typicallyincrease investment in fixed capital, rather than in the field of R&D. Sunk costscreate a heavy burden for the development of the industry. And traditional marketcompetition can’t do anything about it.It is undeniable that the progress of technology has brought an opportunity tosolve this problem.Starting from the case of the competition of electrical equipment distributors,this article analize the changes brought about by the Internet progress to thecompetition. Developing a series of theoretical model, we get the conclusionconsistent with our expectation, that the technological progress is not only able toincrease productivity, they can also impose a profound impact on market institutionsand industry composition, and change the market behavior of enterprises and theircompetitive mode. All of these are on the basis of the impact of the technologicalprogress on the cost structure.In the theoretical analysis, we build the virtual city-linear city, following thebasic assumptions of the theory of industrial organization. Depending on thedifference of the cost structure, we make an assumption of product differentiation,that the services provided by traditional physical stores and the on-line stores aredifferent to a certain extent. Under this assumption we can devide the market according to the different demand faced by different enterprises. After thesepreparations, we apply the leader and follower in the Stahlberg combat model todescribe the status of the traditional physical distributors and on-line distributors,which are respectively the “act firstly” party and the “act secondly” party in thegame. We reach a game equilibrium in the game finally.Of course, this article has some limits on the design of the model. What wemostly focus on is the effect of the development of the Internet on the tertiaryindustry, while the general theory of industrial organization mainly concerns theprimary industry. Although such limits make the conclusion not able to be furtherpromoted, this thought of the article-the progress of technology influences the coststructure-can be further supplemented and perfected. Traditionally, the progress oftechnology is added directly to the production function as a factor variable, while inthe analysis of this article, we change the original variable and coefficient in thefunction, so that the function itself becomes different.