The Influence of Markets on the Division of Labor.

Abstract

Understanding the workings of the division of labor is a critical research goal for economists and strategy scholars alike. For economists, the division of labor is a distinguishing feature of capitalism and a primary driver of productivity gains in the economic system. For strategy scholars, who study heterogeneity in firm performance, the division of labor among firms is inherently intertwined with the identification of factors determining why some firms outperform others. Within this topical research stream, this dissertation comprises two studies examining how the division of labor is influenced by the supply side and the demand side of markets. In the first study, we examine the supply side. Using a formal model, we identify the firm resources that are precursory to integration, to taper integration, and to the division of labor. In the second study, we examine the demand side. We argue that demand characteristics such as market size and the heterogeneity of consumers’ valuations impact the costs and benefits of the division of labor. We find empirical support for the theory from large-scale longitudinal data covering the real estate industry in Southeast Michigan.