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Duality in an Industry with Fluctuating Demand

  • Waka Cheung
  • Yew-Kwang Ng

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.

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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 37-07.

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Length: 19 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mos:moswps:2007-37
Contact details of provider: Postal: Department of Economics, Monash University, Victoria 3800, Australia
Phone: +61-3-9905-2493
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  1. Mills, David E & Schumann, Laurence, 1985. "Industry Structure with Fluctuating Demand," American Economic Review, American Economic Association, vol. 75(4), pages 758-67, September.
  2. Gary S. Murphy Becker & Kevin M., 1992. "The Division of Labor, Coordination Costs, and Knowledge," University of Chicago - George G. Stigler Center for Study of Economy and State 79, Chicago - Center for Study of Economy and State.
  3. 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 623-48, July-Aug..
  4. Sheshinski, Eytan & Dreze, Jacques H, 1976. "Demand Fluctuations, Capacity Utilization, and Costs," American Economic Review, American Economic Association, vol. 66(5), pages 731-42, December.
  5. Mills, David E, 1984. "Demand Fluctuations and Endogenous Firm Flexibility," Journal of Industrial Economics, Wiley Blackwell, vol. 33(1), pages 55-71, September.
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