Question

Why are industries fragmented? what are the pri- mary ways in which companies can turn a frag- mented industry into a consolidated industry?

Answer 1

Industries can be fragmented due to barriers to entry and differentiation. Companies can turn a fragmented industry into a consolidated industry through mergers and acquisitions, horizontal integration, and vertical integration.

Step-by-step explanation:

Industries can be fragmented for several reasons:

Differentiation: If firms in the industry have varied products or services, it can lead to fragmentation as each company tries to cater to a specific market segment.

Mergers and acquisitions: When companies merge or acquire other firms in the same industry, they can consolidate their market share and reduce competition.

Vertical integration: Companies can consolidate the industry by merging with or acquiring suppliers or distributors in the value chain, leading to greater control over the production and distribution process.

Answer 2

Fragmented industries have a large number of small and medium sized companies. Certain industries are fragmented because there are low barriers to entry like low costs, that makes it easier for more players to join the market. Another reason could be no benefits to economies of scale (aka not really cheaper to produce in bulk vs small amounts) so no one company gains a bulk of the market by producing and selling the most.

Companies can turn a fragmented industry into a more consolidated industry by buying up their competitors in mergers, or creating franchises and chains.