Effect of Production Characteristics on Competition

When minimum efficient scale is large in relation to overall industry output, only a few firms are able to attain the output size necessary for productive efficiency. In such instances, competitive pressures may allow only a few firms to survive. On the other hand, when minimum efficient scale is small in relation to overall industry output, many firms are able to attain the size necessary for efficient operation. Holding all else equal, competition tends to be most vigorous when many efficient competitors are present in the market. This is especially true when firms of smaller-than-minimum-efficient scale face considerably higher production costs, and when the construction of minimum-efficient-scale plants involves the commitment of substantial capital, skilled labor, and material resources. When construction of minimum-efficient-scale plants requires the commitment of only modest resources or when smaller firms face no important production cost disadvantages, economies of scale have little or no effect on the competitive potential of new or entrant firms.

barrier to entry

Any advantage for industry incumbents over new arrivals barrier to mobility

Any advantage for large leading firms over small nonleading rivals barrier to exit

Any limit on asset redeployment from one line of business or industry to another

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