7 Chapter 2 Literature Review: Markets, Intermediation and E ...

Markets can be categorised as business-to-business (markets for manufacturers’
goods) and business-to-consumer (markets for consumers’ goods). A business-tobusiness
market can be said to be concentrated (in the sense of being oligopolistic) if
nearly all demand is concentrated in a few large firms making large orders and
dominating the market. Business-to-consumer markets are concentrated if demand is
very large in a particular geographical area due to a high concentration of population
there. Markets which have neither large firms dominating the demand side nor large
numbers of small consumers in one single area are diffuse.
The historical trend identified is the increasingly concentrated nature of the market,
and the reduced costs of exchange. Changes in technology and market conditions
created an economic situation that favoured manufacturer-controlled distribution
systems. However, although the general pattern is clear, there are other factors which
must also be taken into consideration, namely (1) that of minimum efficient scale in
distribution, and (2) the complexity of the marketing system that is required.
Furthermore, where markets remained diffuse, it would remain less economical for
the manufacturer to create a sales network, so it could instead be better either to sell
the goods locally or through independent intermediaries.
Chandler also argues that new technology is an important contributing factor to the
changing organisational structure of firms. Alongside the development of rail and
telegraph networks, was the emergence of a new class of professional salaried
managers and the modern organisational structure, which had a very hierarchical form
and relied upon divided labour to maximise mass production. Reorganisation was
required to effectively manage the operations of increasingly large and complex
organisations, exemplified by the first railway companies. Increasing profits after the
onset of the Civil War in 1861, had allowed manufacturers to finance their own
expansion.
In fact, this literature identified at least four ways in which technological innovations
can have impact: by necessitating new organisational structures to handle
complexities, by encouraging administrative or other process changes that reduce
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