F.J. The paper models the rationalization effects of trade barriers and market size on the firm's decision to produce one or more products. Firms tend to choose multiproduct plants when market size is small in relation to plant size, when product changeover costs are low, when the demand for individual products is relatively inelastic, and when products are poor substitutes in demand. By expanding effective market size, free trade tends to produce specialized plants. The likelihood that specialized plants will emerge when markets are integrated depends on the magnitude of transport costs.
Rationalization takes the form of savings on changeover costs in specialized plants.