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KMID : 1170320090150010021
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Korean Journal of Health Economics and Policy
2009 Volume.15 No. 1 p.21 ~ p.40
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Economies of Scale in the Korean Medical Device Industry
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Park Jung-Ho
Park Ha-Young
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Abstract
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The global medical device market is rapidly growing with the increasing demand for health care. Korea, with its strength in IT, may have a chance to catch up with advanced countries in the medical device industry as the convergence of IT (information technology), BT (biotechnology) and NT (nanotechnology) accelerates technological breakthroughs in this industry. One of major issues policy makers face in formulating strategic plans to develop an industry is how to bring efficiency and effectiveness to the industry. The objective of this study is to examine the economies of scale in the Korean medical device industry. Firstly the translog cost function of the industry is estimated using data of 35 medical device firms over 8 years from 2000 to 2007, then the SCE(scale economy) is investigated using the estimated cost function. The potential to improve efficiency by increasing firm scale was found in the Korean medical device industry as a whole as well as in the segments of large-, medium-, and small-sized firms. The SCE of the entire industry showed a downward trend up to 2003 and stayed flat since 2004. The SCE of the large-sized firms was the highest in every year during the study period and showed upward trend since 2005 and that of the small-sized firms was the lowest and decreased steadily during the study period. This means that the large-sized firms are closer to the optimal scale and the small-sized firms have a higher potential to improve cost efficiency through the scale expansion. Thus, the study results implied a benefit of scale expansion in improving the efficiency of the industry, however, the effect would be limited.
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KEYWORD
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cost function, translog function, economies of scale, medical device industry
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