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Cost Flexibility and Firm Size: An Application to Spanish Manufacturing


  • Nuria Villalba Villalba


This paper examines the relationship between flexibility and the size of establishments for Spanish manufacturing industry. This relationship is examined using the Encuesta Industrial, an annual survey which provides manufacturing sectorial information for six size categories over the period 1980-92. The theoretical framework is that proposed by Mills and Schumann (1985), finding in the evidence related to technological flexibility and demand fluctuations a greater capacity of small firms to adapt to environmental changes, allowing them, in addition, to resist competition based on costs, such as that stemming from scale economies. The results emerging from the estimations confirm that small establishments show greater production variability, employment variability and profit variability than large establishments. That is to say, small establishments are more flexible than large ones due to their greater capacity to absorb demand fluctuations.

Suggested Citation

  • Nuria Villalba Villalba, 2006. "Cost Flexibility and Firm Size: An Application to Spanish Manufacturing," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(3), pages 429-446.
  • Handle: RePEc:taf:ijecbs:v:13:y:2006:i:3:p:429-446 DOI: 10.1080/13571510600961460

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    References listed on IDEAS

    1. Mills, David E & Schumann, Laurence, 1985. "Industry Structure with Fluctuating Demand," American Economic Review, American Economic Association, vol. 75(4), pages 758-767, September.
    2. Taymaz, Erol, 1991. "Flexible automation in the U.S. engineering industries," International Journal of Industrial Organization, Elsevier, vol. 9(4), pages 557-572, December.
    3. 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.
    4. Mills, David E, 1984. "Demand Fluctuations and Endogenous Firm Flexibility," Journal of Industrial Economics, Wiley Blackwell, vol. 33(1), pages 55-71, September.
    5. Francisco Javier Velázquez Angona, 1993. "Economías de escala y tamaños óptimos en la industria española (1980-1986)," Investigaciones Economicas, Fundación SEPI, vol. 17(3), pages 507-525, September.
    6. Zimmermann, Klaus F., 1995. "Flexibility in the face of demand fluctuations: Employment, capacity utilization, and industry structure," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 179-193.
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