At the starting of the twentieth century, there were several small American automobile manufacturers. At the ending of the century, there are only three large ones. Assume that this situation is not the result of lax federal enforcement of antimonopoly laws. How do you describe the decrease in the number of manufacturers? (Hint: Describe the inherent cost structure of the automobile industry?)
Automobile plants are greatly capital-intensive.Supposing there have been no impediments to competition, raising returns to scale can decrease the number of firms in the long run. As firms grow, their costs drop with increasing returns to scale. Larger firms are capable to sell their product for a lower price & push out smaller firms in the long run. Rising returns may cease at some level of output, leaving more than one firm in the industry.