Absence of a market for a product
This situation can occur, for example, when:
- Products are not easily stored or transported, or they have a low price compared to their weight, so transport costs prohibit their distribution to everyone except local producers. Examples include thermal heat, chlorine gas, and straw for heat and electricity production, where only farmers closest to the power plant will benefit. Other examples are found in the forestry sector, construction, and glass.
- Two or more companies are linked by tradition or when a supplier has developed their product to meet specific customer demands.
- The choice of supplier is not subject to normal market conditions, for example in a market with a single supplier of the specific product (a monopoly), or if patents and product standards limit the entry of new suppliers into the market. However, such situations are becoming increasingly rare as even so-called natural monopolies, which have long been divided into regional monopolies, such as the railway, telephone, and electric ones, are now opening up to competition.
- In such situations, marginal suppliers are identified directly, without the need to investigate the more general market trends.
A rapidly shrinking market
In a market that is shrinking rapidly (at a rate higher than can be covered by the decrease resulting from regular and planned elimination of capital goods), the penetration of modern technology is limited because no new capacity is being installed. This limits the competition to existing suppliers. A change in product demand in such a market will not influence the installation of modern technology, but will instead affect the speed and extent to which existing technology is retired. The suppliers involved will generally be the least competitive (often using obsolete technology).
In this situation, it is important to identify the least competitive (old) technology. However, due to the overall increase in population and wealth, rapidly shrinking market situations are currently less common to encounter compared to growing or slowly shrinking markets. Descriptions of technology in engineering manuals and the like typically describe how technologies, often for cost reasons, replace each other over time. Differences in the competitiveness of individual suppliers can be deduced from differences in the most important cost factors for production, whether labor, energy, or raw materials.
Growing or slowly shrinking market
If the market is generally growing, stable, or slowly shrinking (at a rate lower than the average rate of replacement of capital goods), new capacity needs to be installed. This will generally be modern and competitive technology, and any changes in product demand will influence the decision on the extent of this capacity adjustment.
Modern technology may vary depending on the markets. For example, the new solid waste treatment capacity in Scandinavia will be 100% incineration, while landfills will continue to be part of the installed capacity mix in other parts of Europe. Differences in the competitiveness of individual suppliers can be deduced from differences in the most important cost factors for production, whether labor, energy, or raw materials.
Source: Consequential-LCA (2017) . A rapidly shrinking market Last updated: 22-05-2017. www.consequential-lca.org
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