| Growing economic globalisation (a means of market extension) may increase the economic vulnerability of firms in modern industries, especially those in which firms experience substantial economies of scale. The possibility is explored that globalisation activates competitive pressures that forces firms into a situation where their leverage (fixed costs relative to variable costs, or overhead cost relative to operating costs or capital intensity) rises substantially. Consequently, they become increasingly vulnerable to a sudden adverse change in economic conditions, such as a collapse in the demand for their industry’s product. This is explored for monopolistically competitive markets and also for oligopolistic markets of the type considered and modelled... |
