in: The International Encyclopedia of Business and Management (IEBM), Handbook of Economics, editor: William Lazonick, International Thomson Business Press, London
Posted: 25 Apr 2016
Date Written: February 25, 2003
This entry highlights fundamental changes in the electronics industry that have transformed its competitive dynamics and industrial organization: a high and growing knowledge intensity; the rapid pace of change in technologies and markets; and extensive globalization. That explosive mixture of forces has created two inter-related puzzles. The first puzzle is that a high degree of globalization may well go hand in hand with high and increasing concentration. This runs counter to the dominant view, based on the assumption of neo-classical trade theory, that globalization will increase competition and hence will act as a powerful equalizer both among nations and among firms. Multinational corporations, after all, may not be such effective ‘spoilers of concentration’, as claimed by Richard Caves (1982). The second related puzzle is that this industry fails to act like a stable global oligopoly, even when concentration is extremely high: market positions are highly volatile, new entry is possible and not even market leaders can count on a guaranteed survival.
We first explain why it matters to understand the economics of the electronics industry. Section 2 provides a historical perspective on how the structure of the electronics industry evolved, centered around a symbiotic relationship between computers and semiconductors. We briefly sketch the story of how IBM created the “flagship model” of industrial organization, by relying on global production networks (GPN) for manufacturing services, and by outsourcing the PC operating system (to Microsoft) and the microprocessor design (to Intel). Section 3 reviews empirical evidence on the electronics industry’s competition puzzles. Some possible explanations are reviewed in section 4 of the entry: we distinguish sources of concentration and sources of market volatility. Finally, in section 5 we highlight key questions addressed in ongoing research that can further clarify this subject.
Keywords: electronics industry, industrial organization, competition puzzles, global flagship networks
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