In the contemporary period, however, an increasingly substantial proportion of the growth in the fast-food segment of the restaurant industry is being derived from international sales rather the traditionally large increases in domestic sales in the United States. This trend could affect concentration in an industry that in the past largely has been defined by domestic activity within the United States.
One explanation for the phenomenon wherein only the largest fast-food chains have continued to command an above mean multiple of EBITDA may be a function of the concentration ratio in the fast-food segment of the restaurant industry. The traditional structure-conduct-performance paradigm in industrial organization theory holds that the development of monopolistic or oligopolistic power through concentration in an industry will create a situation wherein only the one or a few firms at the top will be highly profitable (Pappas & Brigham, 1996).
Further, the Demsetz (1989) efficiency hypothesis holds that higher concentration in an industry is a reflection of industry dominance by superior low-cost firms. The Demsetz (1989) efficiency hypothesis is tested through the application of multiple regression of the concentration-profits relationship. When significant regression coefficients result only for the industry and large firms, the efficiency hypothesis is upheld, while the monopoly hypothesis is not supported (Leach, 1997).
The problem confronted in relation to the fast-food segment of the restaurant industry in the contemporary period, therefore, is the development of an explanation for the apparently contradictory investor-firm behavior dichotomy within the context of slowing industry growth trends. This problem was investigated through the conduct of this study with a focus on the role of industry concentration in providing the desired explanation.
One research question was investigated. This research question was as foll...
The Fast-food Segment of the Restaurant Industry. (1969, December 31). In LotsofEssays.com. Retrieved 23:09, October 31, 2014, from http://www.collegetermpapers.com/viewpaper/1303338392.html