A Model of the Managerial Revolution

The growth of large firms that integrated production and distribution in the late nineteenth-century U.S. has been chronicled often, most recently by Alfred Chandler. The historical literature, with its emphasis on the integration of production and distribution, has not been amenable to formal economic analysis using the traditional tools of industrial organization.. This paper draws on the literature about prices vs. quantities and transaction costs to derive a simple model of firm integration under conditions of economies of scale in production and uncertainty in marketing. The model then is used to analyze the managerial revolution before World War