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May 4th, 2015
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Question description

3. The following facts characterize the furniture

industry in the United States:39

a. The industry has been very fragmented, so that

few companies have the financial backing to

make heavy investments in new technology and


b. In 1998, only three U.S. furniture manufacturers

had annual sales exceeding $1 billion. These

firms accounted for only 20 percent of the market

share, with the remainder split among 1,000

other manufacturers.

c. Capital spending at one manufacturer,

Furniture Brands, was only 2.2 percent of

sales compared with 6.6 percent at Ford

Motor Company. Outdated, labor-intensive

production techniques were still being used

by many firms.

d. Furniture manufacturing involves a huge number

of options to satisfy consumer preferences,

but this extensive set of choices slows production

and raises costs.

e. Small competitors can enter the industry because

large manufacturers have not built up

any overwhelming advantage in efficiency.

f. The American Furniture Manufacturers

Association has prepared a public relations

campaign to “encourage consumers to part

with more of their disposable income on


g. In fall 2003, a group of 28 U.S. furniture manufacturers

asked the U.S. government to impose

antidumping trade duties on Chinese-made bedroom

furniture, alleging unfair pricing.

h. The globalization of the furniture industry

since the 1980s has resulted from technological

innovations, governmental implementation

of economic development strategies

and regulatory regimes that favor global investment

and trade, and the emergence of

furniture manufacturers and retailers with

a capacity to develop global production and

distribution networks. The development of

global production networks using Chinese

subcontractors has accelerated globalization

in recent years.

Discuss how these facts are consistent with the

model of perfect competition.

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School: Purdue University

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