Chopped-up behemoths clutter entry to industry
Big apartheid-era firms have broken up into unproductive units that don’t grow the economy, killing off competition
Size matters for firms and production. For SA firms, that size is related to age. One positive way in which size matters is in the scale of production. Another is the discretion it affords firms, for example by allowing them to finance large-scale investments using funds retained from profits. Therefore it does not necessarily follow that large firms, considered a hallmark of imperfect competition, are wholly detrimental to the presence of other firms and the economy. Why then would concentration remain a concern if the resultant discretion deployed ultimately indirectly serves a greater good? It is even more puzzling given the proliferation of small firms, because if conditions were that hostile, there would be limited entry. Over time these new entrants should erode the market power of their larger counterparts. However, there are two reasons for concern. Large SA firms have arguably not been productive for almost half a century. Large size confers on them the power to dictate the...
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