Markets & supply chains

There is much talk amongst trade economists of value chains, supply chains and market structure. Market structure refers to a market overall and you will hear terms such as monopoly (where there is only one supplier or where the market share of the main supplier is above, say, 80 per cent), duopoly, (where there are only two suppliers), oligopoly (where the top four suppliers between them control at least 80 per cent of the market), imperfect competition, and oligopsony (where there are a small number of buyers) and monopsony (where there is effectively only one buyer). Each of these has different implications for competitive behaviour but it is likely that you will be working in a sector where there is much freer competition.

Market structure refers to a market overall and you will hear terms such as monopoly, duopoly, oligopoly, imperfect competition, oligopsony and monopsony.

When Henry Ford revolutionised the way that cars were made, introducing the first moving assembly lines, and manufacturing all the parts that went into the car, the company built a factory in the Amazon rain forest, planning to grow rubber trees and make tyres1. But that venture failed. As businesses have aimed to drive down costs, they have tended to specialise more, and thus might make as few as one component that will ultimately be assembled into a car. A consequence is that many businesses will find themselves as part of a supply chain, in which they are either buying components from other businesses or selling components to other businesses.

A supply chain is a system of organisations, people, activities, information and resources involved in supplying a product or service to a consumer. Supply chain activities involve the transformation of natural resources, raw materials, and components into a finished product that is delivered to the end customer. This is different to a value chain though closely related, which describes the range of activities that takes a product from conception to end use and possibly final disposal, focusing on the value added at each stage.