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Duality in an Industry with Fluctuating Demand

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  • Waka Cheung
  • Yew-Kwang Ng

Abstract

A perfect-competition model is developed to analyze duality in specialization and technology such as in the men’s clothing industry, an industry with highly seasonal nature of the business cycle. We show that when the market fluctuation is large enough, some firms will specialize in one good with the advantage of static efficiency, while other firms will generalize in multi-variety production as a means of self- insurance. The specialized firms mainly satisfy the stable component of market demand, while the generalized firms satisfy only the variable components of demands. Relative to the specialized firms, the generalized firms have a smaller firm size and a lower degree of vertical division of labor within the firm, and use the technology with more flexible specialization but less capital-labor ratio.

Suggested Citation

  • Waka Cheung & Yew-Kwang Ng, 2007. "Duality in an Industry with Fluctuating Demand," Monash Economics Working Papers 37-07, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2007-37
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2007/3707dualitycheungng.pdf
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    References listed on IDEAS

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    1. Gary S. Becker & Kevin M. Murphy, 1994. "The Division of Labor, Coordination Costs, and Knowledge," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 299-322, National Bureau of Economic Research, Inc.
    2. Sheshinski, Eytan & Dreze, Jacques H, 1976. "Demand Fluctuations, Capacity Utilization, and Costs," American Economic Review, American Economic Association, vol. 66(5), pages 731-742, December.
    3. Mills, David E & Schumann, Laurence, 1985. "Industry Structure with Fluctuating Demand," American Economic Review, American Economic Association, vol. 75(4), pages 758-767, September.
    4. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    5. Mills, David E, 1984. "Demand Fluctuations and Endogenous Firm Flexibility," Journal of Industrial Economics, Wiley Blackwell, vol. 33(1), pages 55-71, September.
    6. Berger,Suzanne & Piore,Michael J., 1980. "Dualism and Discontinuity in Industrial Societies," Cambridge Books, Cambridge University Press, number 9780521231343.
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    Cited by:

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    2. Kimitaka Nishitani & Shinji Kaneko & Satoru Komatsu & Hidemichi Fujii, 2014. "How does a firm’s management of greenhouse gas emissions influence its economic performance? Analyzing effects through demand and productivity in Japanese manufacturing firms," Journal of Productivity Analysis, Springer, vol. 42(3), pages 355-366, December.

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    More about this item

    Keywords

    flexible specialization; vertical specialization; duality; mechanization;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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