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The future of the world motor industry
418
BibliographicSection
unfortunately, by a whole series of inconsistencies between the graphs and tables describing the major example that is worked out. An errata sheet would be definitely worthwhile here, since the example is nicely designed to illustrate some interesting features of the algorithms. It also shows- but this is a point the authors do not make-why transportation planners often do not bother to search for optimal locations: the best locations are just where one would expect them to be; and the node with the second best location has a minisum only 2% or 9 seconds more than the optimal node-a difference well within the noise level of our ability to estimate travel times. The minimax or center problem minimizes the maximum cost any single user would encounter in being served by one or more facilities to be located. Because it is concerned with extreme rather than average values, its solutions are no longer necessarily on the nodes, even in the simple case of concave disutility functions. For networks which happen to be trees-not the usual circumstance unhappily-optimal solutions can be found quite easily. For general networks however, in which several paths may connect any pair of nodes, local minima abound. A wide range of heuristic techniques have been developed to cull the global optimum from this confusion. Handler presents them cogently and helpfully provides details on considerable computational experience. An important premise underlies much of the text, and essentially all its results, as mentioned in the beginning. This is the assumption that the disutility function is
concave with distance, that is, that the average costs per unit of distance, that is, that the average costs per unit of distance tend to decrease. This phenomenon does occur in a number of important instances. For air transport, for instance, fares per mile decrease along the well-known “fare taper”. But this premise is violated by the many, many other situations in which average disutilities increase markedly with distance. Emergency services in particular exhibit thresholds of steeply rising disutility: if help arrives too late at a fire or for a cardiac patient, all is lost. Many businesses also recognize that their market penetration drops off sharply beyond a certain point; transit operators know, for example, that potential customers are reluctant to walk much more than a quarter of a mile to a station. To my mind, the text is less than candid on consequent limitations to the application of the location theory they present. Bluntly, I think their introductory chapter greatly oversells its usefulness in practice. The distance between the theory presented in this text and the actual problems of transportation planning is illustrated by the fact that the book is part of MIT’s series in Signal Processing, Optimization and Control, rather than its series in Transportation. Readers interested in transportation would do well to bridge this gap by referring to the extensive literature dealing with realistic problems, perhaps most helpfully by concurrently reading the classic text by Eilon, Watson-Candy, and Christofides, Distribution Management: Mathematical Modeling and Practical Analysis, Charles Griffin, London, 1971.
The Future of the World Motor Industry, Krish Bhaskar, Kogan Page Ltd., London, pp. 385, $40.00.
1980,
Reviewed by James P. Womack, Center for Transportation Studies, Massachusetts Institute of Technology, Cambridge, MA 02139, U.S.A. Krish Bhaskar sets out in this volume to explain the evolution of the world auto industry and to predict its structure and level of output ten years hence. This is a forbidding task given the current sea change in the industry’s operating environment but Bhaskar is not one to shirk a challenge and makes weighty claims from the outset about his accomplishments: “Some will find our conclusions surprising, others may find them disagreeable, but no one concerned with the motor industry can afford to ignore them”. Alas, 360 pages later, the reader is hard pressed to come away with any specific conclusions, much less surprising, disagreeable, or indelible ones. Just what has gone wrong here? A few examples of the problem will be helpful in reaching a diagnosis. Bhaskar’s explanation of the industry’s evolution is simple: “ . . .the development of the industry [is] cyclical.. .producers and their markets move from infancy through an emergent phase to a state of fullyfledged maturity, which degenerates as they pass from
maturity to senescence”. Thus the current turmoil in the world automarket involves the emergence of Japan as a mature producer, the onset of senescence in Detroit, and the slide of the British industry into its dotage. Unfortunately, this formula confounds the fate of national markets with national producers while shedding hardly any light on the forces propelling the auto-industrial “life-cycle”. National markets do inevitably mature as vehicle ownership becomes widespread but modest growth rates in vehicle ownership of the sort experienced in the developed countries since 1973 are hardly the same thing as “senescence”, and there is no clear evidence that the fortunes of national industries are tied to national markets. For example, the Japanese home market has matured since 1973 but Japanese producers have continued to “emerge” with far reaching consequences for the rest of the automotive world. As for the producer’s life cycle, Bhaskar takes its existence as established and tosses out a melange of explanations apparently derived from the Heckscher-
Bibliographic
Olin comparative advantage model of international trade, the more recent product cycle model identified with Raymond Vernon at the Harvard Business School, and even more recent theories stressing the importance of multinational oligopolies in shaping patterns of international industrial development. (This, it should be noted, is the reviewer’s conjecture since none of the ideas is spelled out clearly and none is attributed to its progenitor.) To these factors are added intra-firm variables-economies of scale, corporate structure, etc.although with muddled results. General Motors, for example, is found on p. 53 to be in big trouble because it is too large to be managed effectively, nullifying its economy of scale advantage, but by p. 360 GM is in the industry’s catbird seat due to management’s finesse in redeploying resources after 1973. Finally, two more variables are piled on in the form of “environmental consumer oriented constraints dictated by the pecularities of the local market” and “energy crises”. The result is a cacaphony of competing explanations which the author never brings to order. When findings emerge in Part 1 they consequently have the quality of black box predictions of future industry structure rather than explanations of the dynamics of industry evolution: the number of independent producers will shrink in the 1980’s from the present score to eight or less, production will grow much faster in emergent marketsKorea, Mexico, Brazil, Taiwan-than in mature markets, and a few multinationals will control the world auto market even more tightly than they do now. These may all prove true, of course, but on the basis of methodology one can place as much confidence in Sunday supplement articles. Scholars surely should be able to shine a more focused light on the underlying processes. Putting aside a question of industry structure, Bhaskar proceeds in Parts 2, 3 and 4, to an examination of demand for both autos and commercial vehicles, country by country, in the year 1990. He rejects elaborate econometric forecasting models, substituting his own back-of-the-envelope method: (1) Project 1990 population; (2) Project 1990 per capita GNP; (3) Project
DISSERTATION
Section
419
motor vehicles per capita on the basis of per capita GNP and other local conditions (which are never specified but which, judging from the time devoted to the point, consist mainly-and very questionably-of the degree of urbanization); (4) Calculate fleet size using the projections of vehicles per capita and population; and (5) Calculate demand using the “rule of thumb” (wnose pedigree is never established) that annual demand for new vehicles equals one tenth of the vehicle fleet. Bhaskar recognizes the crudeness of the approach and therefore provides a range for his estimates. For example, he forecasts world demand for automobiles in 1990 to be between 34.0 and 57.8 million, a range of 70%. But this raises the obvious question: Why bother? A laborious set of country by country calculations filling three quarters of the book sums to the conclusion that auto demand will grow in the decade of the 1980s anywhere from a little bit to a whole lot. And Bhaskar, the apostle of surprising and disagreeable conclusions, is not comfortable even with the generality of his ranges. A last minute footnote apprises the reader that his predictions when properly understood are actually right in line with other prognosticators of auto demand, this in the face of Michael Hinks-Edwards’s forward to the volume which allows that the mid-points of Bhaskar’s ranges “are on the high side”. These examples are indicative of the whole: Much bluster about the uniqueness of conclusions which turn out to be vague generalities defended by phalanxes of caveats, and much attention to predicting that which is unpredictable in a time of discontinuity-long run demand-coupled with much confusion about the political and economic linkages shaping the evolution of the industry. These latter are the heart of the matter and should be subject to considerable clarification in skillful hands. So.. .the world motor industry doubtless has a future (and Bhaskar is for once convincing in arguing that the demise of the motor car in the post 1973 world has been oversold) but we are unlikely to learn much about it from The Future of the World Motor Industry.
ABSTRACTS
A Simultaneous Equation Estimate of Air Travel Demand. Michael Bruce Abrahams, Department of Economics, Iowa State University, Ames, IA 50011 (Dissertation in the Department of Economics, University of California, Berkeley, CA 94720). The response of the airline industry to new market conditions such as deregulation is based, in part, on the sensitivity of air travel demand to changes in fare, service quality and other parameters, An econometric model of the demand for airline services is one method of determining these elasticities as well as providing a basis for analyzing future conditions. For these reasons an econometric model of air travel demand is developed. In an effort to obtain unbiased estimates, service quality competition, expressed in the form of schedule delay
times, is incorporated into the model and a simultaneous estimator is employed. Furthermore, in an effort to minimize aggregation biases while utilizing sufficient information to obtain accurate estimates, the time-series and cross-section data set is pooled according to geographic and length of haul criteria. These estimates are then used to determine Pareto efficient market allocations. A social cost function is designated and minimized with respect to traffic, flight frequency and capacity. These results are used as in-
BibliographicSection
unfortunately, by a whole series of inconsistencies between the graphs and tables describing the major example that is worked out. An errata sheet would be definitely worthwhile here, since the example is nicely designed to illustrate some interesting features of the algorithms. It also shows- but this is a point the authors do not make-why transportation planners often do not bother to search for optimal locations: the best locations are just where one would expect them to be; and the node with the second best location has a minisum only 2% or 9 seconds more than the optimal node-a difference well within the noise level of our ability to estimate travel times. The minimax or center problem minimizes the maximum cost any single user would encounter in being served by one or more facilities to be located. Because it is concerned with extreme rather than average values, its solutions are no longer necessarily on the nodes, even in the simple case of concave disutility functions. For networks which happen to be trees-not the usual circumstance unhappily-optimal solutions can be found quite easily. For general networks however, in which several paths may connect any pair of nodes, local minima abound. A wide range of heuristic techniques have been developed to cull the global optimum from this confusion. Handler presents them cogently and helpfully provides details on considerable computational experience. An important premise underlies much of the text, and essentially all its results, as mentioned in the beginning. This is the assumption that the disutility function is
concave with distance, that is, that the average costs per unit of distance, that is, that the average costs per unit of distance tend to decrease. This phenomenon does occur in a number of important instances. For air transport, for instance, fares per mile decrease along the well-known “fare taper”. But this premise is violated by the many, many other situations in which average disutilities increase markedly with distance. Emergency services in particular exhibit thresholds of steeply rising disutility: if help arrives too late at a fire or for a cardiac patient, all is lost. Many businesses also recognize that their market penetration drops off sharply beyond a certain point; transit operators know, for example, that potential customers are reluctant to walk much more than a quarter of a mile to a station. To my mind, the text is less than candid on consequent limitations to the application of the location theory they present. Bluntly, I think their introductory chapter greatly oversells its usefulness in practice. The distance between the theory presented in this text and the actual problems of transportation planning is illustrated by the fact that the book is part of MIT’s series in Signal Processing, Optimization and Control, rather than its series in Transportation. Readers interested in transportation would do well to bridge this gap by referring to the extensive literature dealing with realistic problems, perhaps most helpfully by concurrently reading the classic text by Eilon, Watson-Candy, and Christofides, Distribution Management: Mathematical Modeling and Practical Analysis, Charles Griffin, London, 1971.
The Future of the World Motor Industry, Krish Bhaskar, Kogan Page Ltd., London, pp. 385, $40.00.
1980,
Reviewed by James P. Womack, Center for Transportation Studies, Massachusetts Institute of Technology, Cambridge, MA 02139, U.S.A. Krish Bhaskar sets out in this volume to explain the evolution of the world auto industry and to predict its structure and level of output ten years hence. This is a forbidding task given the current sea change in the industry’s operating environment but Bhaskar is not one to shirk a challenge and makes weighty claims from the outset about his accomplishments: “Some will find our conclusions surprising, others may find them disagreeable, but no one concerned with the motor industry can afford to ignore them”. Alas, 360 pages later, the reader is hard pressed to come away with any specific conclusions, much less surprising, disagreeable, or indelible ones. Just what has gone wrong here? A few examples of the problem will be helpful in reaching a diagnosis. Bhaskar’s explanation of the industry’s evolution is simple: “ . . .the development of the industry [is] cyclical.. .producers and their markets move from infancy through an emergent phase to a state of fullyfledged maturity, which degenerates as they pass from
maturity to senescence”. Thus the current turmoil in the world automarket involves the emergence of Japan as a mature producer, the onset of senescence in Detroit, and the slide of the British industry into its dotage. Unfortunately, this formula confounds the fate of national markets with national producers while shedding hardly any light on the forces propelling the auto-industrial “life-cycle”. National markets do inevitably mature as vehicle ownership becomes widespread but modest growth rates in vehicle ownership of the sort experienced in the developed countries since 1973 are hardly the same thing as “senescence”, and there is no clear evidence that the fortunes of national industries are tied to national markets. For example, the Japanese home market has matured since 1973 but Japanese producers have continued to “emerge” with far reaching consequences for the rest of the automotive world. As for the producer’s life cycle, Bhaskar takes its existence as established and tosses out a melange of explanations apparently derived from the Heckscher-
Bibliographic
Olin comparative advantage model of international trade, the more recent product cycle model identified with Raymond Vernon at the Harvard Business School, and even more recent theories stressing the importance of multinational oligopolies in shaping patterns of international industrial development. (This, it should be noted, is the reviewer’s conjecture since none of the ideas is spelled out clearly and none is attributed to its progenitor.) To these factors are added intra-firm variables-economies of scale, corporate structure, etc.although with muddled results. General Motors, for example, is found on p. 53 to be in big trouble because it is too large to be managed effectively, nullifying its economy of scale advantage, but by p. 360 GM is in the industry’s catbird seat due to management’s finesse in redeploying resources after 1973. Finally, two more variables are piled on in the form of “environmental consumer oriented constraints dictated by the pecularities of the local market” and “energy crises”. The result is a cacaphony of competing explanations which the author never brings to order. When findings emerge in Part 1 they consequently have the quality of black box predictions of future industry structure rather than explanations of the dynamics of industry evolution: the number of independent producers will shrink in the 1980’s from the present score to eight or less, production will grow much faster in emergent marketsKorea, Mexico, Brazil, Taiwan-than in mature markets, and a few multinationals will control the world auto market even more tightly than they do now. These may all prove true, of course, but on the basis of methodology one can place as much confidence in Sunday supplement articles. Scholars surely should be able to shine a more focused light on the underlying processes. Putting aside a question of industry structure, Bhaskar proceeds in Parts 2, 3 and 4, to an examination of demand for both autos and commercial vehicles, country by country, in the year 1990. He rejects elaborate econometric forecasting models, substituting his own back-of-the-envelope method: (1) Project 1990 population; (2) Project 1990 per capita GNP; (3) Project
DISSERTATION
Section
419
motor vehicles per capita on the basis of per capita GNP and other local conditions (which are never specified but which, judging from the time devoted to the point, consist mainly-and very questionably-of the degree of urbanization); (4) Calculate fleet size using the projections of vehicles per capita and population; and (5) Calculate demand using the “rule of thumb” (wnose pedigree is never established) that annual demand for new vehicles equals one tenth of the vehicle fleet. Bhaskar recognizes the crudeness of the approach and therefore provides a range for his estimates. For example, he forecasts world demand for automobiles in 1990 to be between 34.0 and 57.8 million, a range of 70%. But this raises the obvious question: Why bother? A laborious set of country by country calculations filling three quarters of the book sums to the conclusion that auto demand will grow in the decade of the 1980s anywhere from a little bit to a whole lot. And Bhaskar, the apostle of surprising and disagreeable conclusions, is not comfortable even with the generality of his ranges. A last minute footnote apprises the reader that his predictions when properly understood are actually right in line with other prognosticators of auto demand, this in the face of Michael Hinks-Edwards’s forward to the volume which allows that the mid-points of Bhaskar’s ranges “are on the high side”. These examples are indicative of the whole: Much bluster about the uniqueness of conclusions which turn out to be vague generalities defended by phalanxes of caveats, and much attention to predicting that which is unpredictable in a time of discontinuity-long run demand-coupled with much confusion about the political and economic linkages shaping the evolution of the industry. These latter are the heart of the matter and should be subject to considerable clarification in skillful hands. So.. .the world motor industry doubtless has a future (and Bhaskar is for once convincing in arguing that the demise of the motor car in the post 1973 world has been oversold) but we are unlikely to learn much about it from The Future of the World Motor Industry.
ABSTRACTS
A Simultaneous Equation Estimate of Air Travel Demand. Michael Bruce Abrahams, Department of Economics, Iowa State University, Ames, IA 50011 (Dissertation in the Department of Economics, University of California, Berkeley, CA 94720). The response of the airline industry to new market conditions such as deregulation is based, in part, on the sensitivity of air travel demand to changes in fare, service quality and other parameters, An econometric model of the demand for airline services is one method of determining these elasticities as well as providing a basis for analyzing future conditions. For these reasons an econometric model of air travel demand is developed. In an effort to obtain unbiased estimates, service quality competition, expressed in the form of schedule delay
times, is incorporated into the model and a simultaneous estimator is employed. Furthermore, in an effort to minimize aggregation biases while utilizing sufficient information to obtain accurate estimates, the time-series and cross-section data set is pooled according to geographic and length of haul criteria. These estimates are then used to determine Pareto efficient market allocations. A social cost function is designated and minimized with respect to traffic, flight frequency and capacity. These results are used as in-