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Journal Article

Market Growth, Economies of Scale, and Plant Size in the Chemical Processing Industries

Marvin B. Lieberman
The Journal of Industrial Economics
Vol. 36, No. 2 (Dec., 1987), pp. 175-191
Published by: Wiley
DOI: 10.2307/2098411
Stable URL: http://www.jstor.org/stable/2098411
Page Count: 17
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Market Growth, Economies of Scale, and Plant Size in the Chemical Processing Industries
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Abstract

What factors determine the size of new industrial plants? This study uses data on 22 chemical products to test alternative models of capacity expansion, including the Manne model and a "scale frontier" model. The empirical results strongly support the scale frontier model: the size of new plants increased along a time trend that was unrelated to market concentration, market growth, or the magnitude of investment scale economies. Entrants typically built smaller plants than incumbents, but all firms built plants closer to the technological frontier when small plants carried a higher relative cost penalty.

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