Civil Engineering Reference
In-Depth Information
6
9
Markets for Green Buildings
and Infrastructure
An important consideration for any firm seeking to control the market and stand
out from its competition is to satisfy, or create, a niche market - to produce a
service or product that is in some way different from its rivals. In economic terms
this is referred to as
product differentiation
. We have already discussed how
in the extreme case of perfect competition we assume that the market consists
of homogeneous products, in which each individual firm in the market produces
an identical product (or service) and has a horizontal demand curve. To express
it another way, in a perfectly competitive market there is only one specific
'undifferentiated' product (see
Key Points 8.1
).
Providing a firm can manage to differentiate its product or service from
other similar products - even if only slightly - it can gain some control over the
price it charges. Firms producing a differentiated product are able to achieve some
independence from their competitors in the industry. They should be able to raise
their prices, and thereby increase profits, without losing all their customers. Unlike
firms operating at the perfectly competitive extreme, they face a slightly downward
sloping demand curve. In fact, the greater a firm's success at product differentiation,
the greater the firm's pricing options - and the steeper the demand curve.
OPPORTUNITIES TO DIFFERENTIATE CONSTRUCTION PRODUCTS
Economics textbooks usually emphasise that the opportunities to differentiate a
product or service in the construction industry are limited. Firms may be able to
market themselves as somehow superior to their competitors in terms of quality
or reliability, but they are always constrained by the large number of firms that
compete and produce close substitutes. Consequently, the ability of one firm to
significantly raise its prices above that of its competitors is restricted. Gruneberg and
Ive (2000: 92) extend this hypothesis. They argue that the tendering process creates
a further complication, as it is usually assumed that all those selected to submit
tenders are undifferentiated - equal, in terms of the service they are offering.
An important aim of this chapter, however, is to identify the economic
arguments that may encourage construction firms to take up the green challenge.
This depends upon firms in the industry taking the opportunity to differentiate their
product by moving away from traditional techniques to those that demonstrate
environmental awareness. It also involves paying attention to global, local and user
concerns if firms are to develop sustainable buildings and infrastructure.
At the time of writing, a construction firm producing environmentally sensitive
products would be able to distinguish itself so effectively from the majority that it
could secure short-term monopoly profits - that is, until the time when competitors
recognise the benefits of following the same mould, bringing the market back to
