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Report n°2: An integrated approach to economic and social contestability in business

Regulation issues for the productive asset

Once he has acquired both types of asset, the recycling operator is in a position to control access to sources of supply in the collection area accessible to him. He has two mechanisms to help him do so: the prices he offers to collectors of material for recycling; and the information and expertise they gain from him during the repeated transactions. He can use these mechanisms to achieve co-ordination of collecting efforts of collectors to obtain the required quantity and quality of supply from them. The driving motive is that he looks for a supply suitable for his business's central productive asset: the shredder. The distinctive feature of this asset is the relation it bears to the other assets discussed above, because it is located within the area providing the supplies, and access to the supplies is regulated by the shredder's own technical specification and by the demand from a downstream customer. This link between the characteristics of the machine and upstream and downstream market conditions makes the shredder a sustainable source of profit for its operator. Two additional observations can be made. For the upstream market, the recycler's skill in sustaining appropriate coordination of efforts of independent collectors towards maintaining the quality of the supplies on the long run critically affects the revenue generated by the investment in this productive asset. The recycler thus organises the way he works with independent suppliers by fine-tuning the transfer of information and expertise. Establishing a relationship where the collectors have a basic trust in the one who controls the production equipment is fundamental to ensure the business continues; it also helps remove any threat of external economic contestation. Investing in a shredder with particular technical characteristics implies a medium- or long-term timing to break even; but it is not the only factor that prompts the recycler to take threats to his location seriously. The other location assets he has also determine his business horizon, and this will extend indefinitely into the future if the differential advantages of the established site are maintained or strengthened.