Economic performance of product diversification in korean manufacturing industry

Abstract

Product diversification, or entry by established firms into markets where they have not competed before, is popular activity of large firms in Korean manufacturing industry. Firms seek diversification as a source of future profit and growth but it may have fundamental effects on competition and efficiency. This thesis measures the extent and trends of diversification in Korean manufacturing industry for 1977 and 1981 and investigates the determinants and directions of diversification. Then we analyze the effects diversification on competition (market concentration) and efficiency (aggregate concentration). The main findings are as follows: (1) Product diversification has risen greatly from 0.122 in 1977 to 0.375 in 1981 on the average. (2) This increase in diversification was arising from high concentration in home industry and made possible from capacity to diversify obtained through high growth in demand. (3) and was directed toward an industry of high profit and growth and high concentration. (4) Diversified entry reduced concentration if the industry entered was highly concentrated (with $CR_{77}$ greater than 0.859) but increased concentration in low-concentrated industries (with $CR_{77}$$ less than 0.859). (5) Aggregate concentration has increased 6\% and more than the increases was attributable to the increase in diversification with decrease in market concentration reducing the increase in aggregate concentration.