why firms stay small
- Created by: Fi Alade
- Created on: 31-03-14 12:52
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- Why companies remain small
- Barriers to entry
- Legal
- permit and license requirements stop growth and expansion
- patent laws can prevent production of a product for a length of time
- e.g. planning permission for expansion, accountant registry with ICAEW
- Overt
- from existing members of market
- e.g. advertising, limit/predatory pricing, branding
- Sunk costs
- e.g. advertising (non contestable markets have higher sunk costs)
- capital costs
- Legal
- Niche markets
- no support for growth, possible local monopoly e.g manufacturer of cricket balls
- Lack of resources
- lack of knowledge or funds, increasing output increases costs such as increase in levels of financial regulation
- lack of motivation, opportunity cost of time spent expanding
- firm already at most productively efficient point
- expansion leads to diseconomies of scales
- benefits of small firms
- additional training grants and government support
- stay below tax thresholds
- avoid unwanted attention from bigger firms
- why do companies break up
- grow too large and experience diseconomies of scale
- lack of synergy
- value of demerged firms greater than value together
- focus on aspects of market
- Barriers to entry
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