Glass Industry in Turkey
When glass industry in Turkey is analyzed, it is observed that there are middle and small sized firms, work places at workshop levels in very limited numbers and a dominant producer, Türkiye Şişe ve Cam Fabrikaları Topluluğu. More than 90% of the annual production of market is met by Şişecam. Although there are no law and arbitration barriers to enter to the glass market, firms hesitate to enter since glass industry requires continuous production with high capacity and continuous investment and raw materials in Turkey are not in high quality and the amount of their reserves in Turkey are declining day by day, namely the industry is becoming more costly and risky.
Furthermore, diminishing returns in the short-run increase marginal cost of glass production as the necessity of innovation and continuous production makes producer buy more technological and faster machines and equipment but the staff cannot use them efficiently for a definite period, which increase total cost and marginal cost but not brings about same increase in output levels. Decline in quality of raw materials also explains the diminishing returns and rising marginal costs.
The buyer range of glass market is extensive as glass is not only used for decoration purposes and used as kitchen utensils but also it is used as an input in construction, food, furniture, white goods, medicine, soft drinks, automotive and electrical-electronics industries. In addition, glass plays an important role in these industries as the producers of these industries cannot substitute any other input for glass in some parts of their production processes.
The representative of glass market in Turkey, Şişecam can determine the price or quantity of its products. As Şişecam is a price maker, not a price taker it is more likely that it will try set a price resulting in profit maximization which is not too high or too low and makes marginal revenue equals to marginal cost. It worths mentioning that Şişecam can determine either price or quantity, not both of them. When one of them is set, the other will be determined by demand curve. However, price and quantity are not the sole components that Şişecam can play with. Şişecam tries to catch the trend in technology in abroad by establishing joint-ventures with foreign firms in order to innovate itself, improve the product design and product diversity.
In addition, as a result of its marketing strategy, Şişecam sells its trifles and kitchen utensils in Paşabahçe Stores which are located in strategic places of İstanbul, Ankara, İzmir, Adana, Antalya, Bursa, Mersin, Denizli, Bodrum, and Marmaris. Şişecam also seeks an expansionary policy in abroad. It has two firms in Bulgaria and Georgia and representative offices in Germany, Russia, China, Hong Kong and Austria. Though Şişecam states its strategic goal as ‘keeping the leading position in the country, increasing foreign sales, climbing the ranks of glass production statistics and producing in an environmentally friendly way’, it is clear that the primary objective of a firm is to maximize its profits as the theory of firm implies and the objective of Şişecam is to maximize its profit in the short-run by trying to equate its marginal revenue and marginal cost. Şişecam is not afraid of possibility of sharing its short run economic profits with the other firms since it is the sole firm in glass industry in Turkey. All in all, when we analyze glass industry in Turkey on the basis of number of sellers, cost conditions, number of buyers, demand conditions, strategic variables, objective function and expectation of rivals’ reactions, we can conclude that the market structure of glass industry is monopoly.
Şişecam is the monopolist of glass industry since it is the sole producer in the marker except for a few enterprises but there are many buyers of its products, its marginal costs increase due to diminishing returns in the short-run, it can use price, quantity, product design, distribution channels as strategic variables, the objective of the firm is profit maximization in the short-run and it has no expectation of rivals’ reaction as there is no rival in the industry.