Fluctuating market demand for product variety may have a variety of effects on organization of production in an industry. It may alter the optimal firm size because of differing abilities of firms of various size to respond to changes in consumer demand and economies of large-batch versus small-batch production. If consumer preferences change quickly, it may be important for an industry to relocate closer to the consumption market because transportation costs and inventory costs per unit of output increases with demand uncertainty, since delivery lags increase the probability of style obsolescence. This process may affect both the internal location of an industry and the likelihood of import penetration.;Our study indicates that the empirical relationship between information (or fashion) and location, between information (or fashion) and firm size, and between information (or fashion) and import share from developed countries are strongly significant with expected signs. Product demand fluctuations and corresponding information requirements appear to have a substantial impact on industrial organization. Finally the Lisrel (Linear Structural Relations) method provides more robust parameters estimates than selecting plausible variables for proxies for use in ordinary least squares.;The textile industry is a good choice for exploring these propositions empirically. This industry has two major components, mill products and apparel. The second is much more vulnerable to fluctuations in fashion, or the demand for variety. The second is comprised of small family owned firms, being less complete and rapid in shifts to the South. Developed countries have penetrated the U.S. with fashion goods because of similar consumer information structure. Developing countries have a disadvantage on non-fashion goods because of a delivery lag.
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