Economies of Scale and Technological Change: An International Comparison of Blast Furnace Technology

Abstract

The iron and steel industry is often cited as an example of an industry with significant economies of scale. Yet it is obvious even to a causal observer that iron and steel works of very different sizes continue in operation in various parts of the world. In fact, investments continue to be made in plants far below the average size today. If firms can be assumed to behave rationally and therefore to invest in the most practical or ‘best practice’ technology (i.e., the ‘least-cost’ technology available with given relative factor prices) this would indicate either that best practice technology is not particularly strongly related to scale, or that the cost advantages of best practice (large scale) technology are not large enough to ouweigh other considerations.

A preliminary version of this paper was pesented at the Second IIM Conference on Economics of Industrial Structure at Nijenrode, the Netherlands, April1–3, 1975. The author would like to thank the discussants at the Conference, representatives of the British Steel Corporation and Oxelösunds Järnverk, and John Hause, Bertil Lindström, Lennart Ohlsson, and Nathan Rosenberg for helpful comments on earlier versions of this paper.