NCJ Number
156050
Journal
Security Dealer Dated: (December 1994) Pages: 40-43
Date Published
1994
Length
4 pages
Annotation
The level of competitiveness in the security industry explains how prices are derived and the freedom individual companies have in determining price; scrutinizing economies of scale and the scope of industry segments suggest possible future changes in industry competitiveness.
Abstract
The security alarm industry is composed of four parts: equipment manufacturers, distributors, installing dealers, and monitoring companies. The industry is estimated to generate over 6 billion dollars a year. Over 17 million systems are estimated to be installed to date. Changes in the value of shipments over time provide a good approximation of the annual growth of an industry. The value of product shipments in the security industry is growing annually at approximately 8.78 percent. In all parts of the alarm industry, the share of small companies increases over time, suggesting no economies of scale. Vertical integration is evident mostly between monitoring companies and dealers. Prices among distributors, installing dealers, and monitoring companies are highly competitive. Vertically integrated companies such as ADT ensure that the industry remains competitive. If prices rise in any of the three parts of the industry, then ADT and similar large companies can and will supply products and/or services to where prices have increased, thus forcing prices back down. The other factor that keeps prices competitive is the ease of entry and exit by marginal firms. No apparent licensing, little accumulated knowledge, and low start-up capital make entry and exit into the alarm industry easy.