The New Paradigm - Federal Reserve Bank of Dallas

19
Exhibit 13
Bigger Is Better
Never has the number of corporate mergers and acquisitions
been higher. Advances in information management and communication
have helped firms cut costs by consolidating output into
larger operations. Technology has made higher output the key to
lower prices across many industries.
U.S. Mergers and Acquisitions
Thousands
10
8
6
4
2
0
’72 ’76 ’80 ’84 ’88 ’92 ’96
system is big enough to serve a critical mass. This has
always been true for telephones, trucking routes, airlines,
television and electricity. Now it also applies to the Internet,
media and telecommunications, all industries on the
economy’s leading edge.
Finally, the Information Age is largely a world of high
fixed and low marginal cost. Modern technology often
requires staggering startup costs, with tens or even hundreds
of millions of dollars going to design products, recruit
workers, purchase equipment and establish a presence in
the marketplace. Once in production, however, delivering
additional goods or services is typically rather cheap.
Consider prescription drugs. It requires an average $350
million to bring a new pill to market. At that price, the cost
of producing the first dose is exorbitant. If it takes a penny
to produce each additional one, though, average production
costs fall quickly—to $350 each at 1 million pills,
$3.51 at 100 million and 4¢ at 10 billion. (See Exhibit 14.)
For about $60, pet owners can have a biocompatible glass capsule
about the size of an uncooked grain of rice implanted between their
pet’s shoulder blades. A tiny memory chip inside the capsule acts as a
miniature transponder that relays information via low-frequency radio
signals. With the help of a special scanner (about $400), veterinarians,
animal shelters and the like can tap into a nationwide database of pet
owners, their addresses and phone numbers, plus the animals’ characteristics,
pedigree, medical history and more. Not only does the system
make locating a lost pet much easier, it has made pet insurance affordable
since conclusively identifying Fido is now possible.
Keeping track of livestock can mean big savings for ranchers. With
the help of electronic “hoof meters,” today’s high-tech dairy farmer can
check on the whereabouts of any one of his cows by double-clicking on
the animal’s face on a computer monitor. The history of each cow’s food
and medicine intake, weight, milk yield and even temperature is
instantly available from a comfortable remote location. What once took
a legion of workers now takes just one.
Federal Reserve Bank of Dallas 1999 ANNUAL REPORT