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Diversification and Integration in American Industry

  • Economics


Concepts and Methods This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Diversification and Integration in American Industry Volume Author/Editor: Michael Gort Volume Publisher: Greenwood Press Volume ISBN: 0313-32442-5 Volume URL: Publication Date: 1962 Chapter Title: Concepts and Methods Chapter Author: Michael Gort Chapter URL: Chapter pages in book: (p. 8 - 26) CHAPTER 2 Concepts and Methods THIS chapter is concerned with developing definitions and measures of the concepts of diversification and integration, and with examining the technical characteristics of the data employed. It is written primarily for those interested in a close examination of the basis for conclusions reached in this study. Concepts of Divers fflcation Diversification may be defined as an increase in the heterogeneity of markets served by an individual firm. Heterogeneity of production is distinct from diversification if it involves minor differences of essentially the same product, or if it takes the form of vertical integration. (The latter is dis- cussed in a later section.) In economic theory, it is usual to propose cross-elasticity of demand as a basis for identifying separate markets, and hence separate products for the purpose of measuring diversification. If cross-elasticity is high, the pro- ducts are close substitutes and, hence, belong to the same market; if it is low, the products belong to separate markets. Unfortunately, there is little information on cross-elasticities of demand and, even were it avail- able, one would still need to define the value of elasticity below which products may be considered as being separate—a definition that of neces- sity would be largely arbitrary. Another solution to the problem is to identify separate markets on the basis of the immobility of productive resources. When resources can be shifted rapidly f

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