The Conflict between Technology and Scale: Evidence from China’s Wooden Furniture Industry

Abstract

The Chicago School believes that more efficient firms will earn higher profits, leading to higher market concentration. How does this apply to situations in specific industrial environments? The output value and import and export volume of China’s wooden furniture industry rank among the highest in the world, but the industry’s profit growth rate is decreasing. Is this phenomenon caused by a problem in the growth mode of the industry itself? It is especially important to understand the real characteristics of the industry. The purpose of this study is to discover the characteristics and trends of China’s wooden furniture industry and to clarify the direction of the future development of the industry. Market concentration index, data envelopment analysis and Engel-Granger cointegration test were applied to this study respectively. Based on the theory of industrial organization, this study conducted an empirical analysis in three stages. The results show that China’s wooden furniture industry is still a labor-intensive industry, the increase in market concentration mainly depends on the expansion of the labor force, and there is a conflict between industrial technological progress and scale expansion. It has also been confirmed in theory that the market structure is affected by efficiency. However, the way and degree of impact depend on the level of industrial development. This study can provide a reference for the formulation and adjustment of macro policies for industrial development, improve the understanding of industry characteristics and trends at the enterprise level to help enterprises achieve transformation, and offer international and domestic investors a reference point for investment decisions at the market level. This study combines macro-level "industry" with micro-level "enterprise" to make the study more comprehensive and systematic, and fills in the gaps in related research in the field.