A marvellous example from the FT today using Kay's capability analysis on the failure of the London black cab manufacturers Manganese Bronze. Their two capabilities: regulation and reputation, ran out. Interesting articles here, pointing out for example:
"2007 was the last year the company turned a profit. While Manganese Bronze had updated its cabs over the years, they were still being built on a basic structure that traced its heritage back to the first black taxi, dating from 1948. Despite its outdated product, the company enjoyed a protected market because of a rule that London taxis have a 28ft turning circle.
But by 2008, the TX4 faced serious competition from Mercedes-Benz’s Vito, which met the 28ft circle rule but was more fuel-efficient and cheaper to run. In just over four years, the car has captured 38 per cent of the London market"
2. Adjustment along many margins
In our supply and demand models, price and quantity adjust to restore equilibrium. But what if they, due to regulation for example, cannot adjust and are not at the equilibruim point? The lessson of economics is that in such a market there is an opportunity to trade. So its likely that there will be some other form of adjustment. Here's a great example from Tim Taylor on rent control.