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    Perfect competition and the furniture industry

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    The following facts characterize the furniture industry in the United States:

    a. The industry has been very fragmented, so that few companies have the financial backing to make heavy investments in new technology and equipment.

    b. In 1998, only three U.S. furniture manufacturers had annual sales exceeding $1 billion. These firms accounted for only 20 percent of the market share, with the remainder split among 1,000 other manufacturers.

    c. Capital spending at one manufacturer, Furniture Brands, was only 2.2 percent of sales compared with 6.6 percent at Ford Motor Company. Outdated, labor-intensive production techniques were still being used by many firms.

    d. Furniture manufacturing involves a huge number of options to satisfy consumer preferences, but this extensive set of choices slows production and raises costs.

    e. Small competitors can enter the industry because large manufacturers have not built up any overwhelming advantage in efficiency.

    f. The American Furniture Manufacturers Association has prepared a public relations campaign to "encourage consumers to part with more of their disposable income on furniture."

    g. In fall 2003, a group of 28 U.S. furniture manufacturers asked the U.S. government to impose antidumping trade duties on Chinese-made bedroom furniture, alleging unfair pricing.

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    Solution Preview

    Perfect competition involves many small companies, none of which have a great deal of market share. This is consistent with b. Because profits are low, firms do not have funds to update their technology or equipment. This i sconsist with a and c. Attempts to compete of factors other than price lead companies to offer ...

    Solution Summary

    Perfect competition as manifested in the furniture industry.