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

What factors determine the size of new industrial plants? This study uses data on twenty-tw o chemical products to test alternative models of capacity expansion, including the Manne model and a "scale frontier" model. The empiri -cal results strongly support the scale frontier model: the size of n ew plants increased along a time trend that was unrelated to market c oncentration, market growth, or the magnitude of investment scale eco nomies. Entrants typically built smaller plants than incumbents, but all firms built plants closer to the technological frontier when smal l plants carried a higher relative cost penalty.