Final answer:
The question examines the factors leading to sustained competitive advantage in firms and the debate over whether advancements in technology favor larger or smaller firm sizes. It discusses the impact of information and communications technologies on market dynamics and the role of government policy in maintaining competition while allowing for scale efficiencies. The theory of dynamic comparative advantage further explains how trade benefits can arise from specialization and economies of scale.
Step-by-step explanation:
The question revolves around the factors that may lead to sustained competitive advantage for firms in certain industries, specifically those that are informationally complex, require customer knowledge to use their products, are research and development (R&D) intensive, and benefit from significant economies of scale. A contentious point is whether new information and communications technologies will result in larger or smaller firm sizes. While these technologies might enable small firms to reach wider markets and predict a future with many small competitors, they could also lead to the dominance of large firms, as seen with Microsoft and Amazon, that can manage widespread operations more effectively and leverage economies of scale.
From a policy perspective, governments must find a balance between the efficiency gains from large-scale production and the benefits of competition, which include lower prices and innovation. This involves decisions about how much and when to intervene in the market to prevent the reduction of competition often associated with the growth of businesses, particularly through mergers. The concept of dynamic comparative advantage elaborates on prior theories, suggesting gains from trade can come from both specialization and the efficiencies of large-scale production.