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Flexible Manufacturing, Uncertain Consumer Tastes, and Strategic Entry Deterrence

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  • Chang, Myong-Hun

Abstract

This paper investigates the strategic use of flexible manufacturing technology as an entry-deterring mechanism. It is shown that, when consumers' tastes fluctuate probabilistically , an incumbent threatened with potential entry installs flexible manufacturing technology for a larger set of probabilities that consumers' tastes will change than the perfectly protected monopolis t. The differential probability sets represent the intent of the monopo ly incumbent strategically to use product-design flexibility for deterr ing entry into the potential market and maintain its dominance under fluctuating consumer tastes. This purely preemptive flexibility is shown to exist under reasonable assumptions on the firms' payoff structure. Copyright 1993 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 41 (1993)
Issue (Month): 1 (March)
Pages: 77-90

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Handle: RePEc:bla:jindec:v:41:y:1993:i:1:p:77-90

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. NORMAN, George & THISSE, Jacques-François, 1996. "Technology choice and market structure : strategic aspects of flexible manufacturing," CORE Discussion Papers 1996059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Tseng, Mei-Chiun, 2004. "Strategic choice of flexible manufacturing technologies," International Journal of Production Economics, Elsevier, vol. 91(3), pages 223-227, October.
  3. Norman, George, 2002. "The relative advantages of flexible versus designated manufacturing technologies," Regional Science and Urban Economics, Elsevier, vol. 32(4), pages 419-445, July.
  4. Kwon, Chul-Woo, 2013. "An optimal production method for penetrating foreign markets: Standardization, localization, and flexible technology," Economic Modelling, Elsevier, vol. 33(C), pages 398-406.
  5. Hao Wang, 2007. "Uncertain Consumer Tastes and Two-Part Tariff," Microeconomics Working Papers 22714, East Asian Bureau of Economic Research.
  6. Ana Faria & Paul Fenn & Alistair Bruce, 2002. "Determinants of adoption of flexible production technologies: Evidence from portuguese manufacturing industry," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(6), pages 569-580.
  7. Louis Amato & Christie Amato, 2000. "The Impact of High Tech Production Techniques on Productivity and Profitability in Selected U.S. Manufacturing Industries," Review of Industrial Organization, Springer, vol. 16(4), pages 327-342, June.

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