Efficient Size and Firm Concentration

JANUARY 14, 2005

Much of Chandler's argument is premised, for example, on his casual assertions about the minimum efficient scale of operations for firms in particular industries. But in a detailed review of the literature and concepts surrounding these issues, Scherer and Ross (1990) argue that many ambiguities surround the idea of minimum efficient scale; they summarize considerable empirical evidence that efficiency in an industry is similar over a wide range for firm sizes, and tentatively conclude that actual concentration in U.S. manufacturing industry appears to be considerably higher than the imperatives of scale economies require [ed: and might suggest the role of market and/or political power that size conveys] (p. 141). They note that empirical studies are equivocal as to the economic success of the multidivisional form (Scherer and Ross, 1990, p.105 n. 17), and point out that one of the main exemplars of this form described by Chandler, General Motors, has faced difficulties at least since the 1940s that may be associated wit rigidities of organizational form (Chandler, 1990, pp. 105-106)

Source: Williamson in dosi_ea_1990 p. 75-76. For Scherer and Ross, Industrial Market Structure and Economic Performance 3rd ed. Houghton Mifflin.