A historical account of the development of the cotton textile industry in Englan

Question

A historical account of the development of the cotton textile industry in England argued: The cotton textile industry was shaped by ruthless competition. Rapid growth in demand, low barriers to entry, frequent technological innovations, and a high rate of firm bankruptcy all combined to form an environment in which... oligopolistic competition became almost impossible." Source: Thomas K. McCraw, ed., Creating Modern Capitalism, Cambridge, MA: Harvard University Press, pp. 61-62. Explain how each of the factors described below would contribute to making oligopolistic competition in the cotton textile industry very difficult. Select the correct effect next to each factor listed a. Low barriers to entry meant that b. Frequent technological innovatio c. A high rate of firm bankruptcy me exit from the industry was common the number of firms in the industry changes costs would be falling

Explanation / Answer

a. Low barriiers to entry meant that the number of firms in the industry changes. Because when there will be low barriers to entry new firm can take entry in the market. There is little barriers to enter. As a result of this low barriers there will be change in number of firm in the industry and number of firm gradually increase and it will make difficult the oligopolistic competition.

b. Frequent technological innovations meant that costs would be falling. When there will be new technology it would reduce the costs of production. Because new technology helps to reduce overalll cost of production. This fall in costs attract the the new firm in the market. This low cost and new entry of firms both makes the oligopolistic competition more difficult.

c. A high rate of firm bankruptcy meant that exit from the industry was common. When the firm would not be able to sustain in the market and then the firm will definitely exit from the market. Due to this exit of the firm they are not able to repay the amount of bank loan. Due to this common exit they failed to repay the amount which they take as loan from bank. This high rate of bankruptcy discourage the financial institutions to give loan to other firms for their investment. So this will also makes the oligopolistic competition more difficult.

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