Duality in an Industry with Fluctuating Demand

Waka Cheung

and

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 variety 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 demand. 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.