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Choice of flexible production technologies under strategic delegation

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  • Bárcena-Ruiz, Juan Carlos
  • Olaizola, Norma

Abstract

This paper analyzes a managerial delegation model in which firms can choose between a flexible production technology which allows them to produce two different products and a dedicated production technology which limits production to only one product. We analyze whether the incentives to adopt the flexible technology are smaller or greater in a managerial delegation model than under strict profit maximization. We obtain that the asymmetric equilibrium in which only one firm adopts the flexible technology can be sustained under strategic delegation but not under strict profit maximization when products are substitutes. We extend the analysis to consider welfare implications.

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Bibliographic Info

Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 20 (2008)
Issue (Month): 3 (August)
Pages: 395-414

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Handle: RePEc:eee:japwor:v:20:y:2008:i:3:p:395-414

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Web page: http://www.elsevier.com/locate/inca/505557

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  1. Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Discussion Paper 1991-36, Tilburg University, Center for Economic Research.
  2. Gotz, Georg, 2000. "Strategic timing of adoption of new technologies under uncertainty: A note," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 369-379, February.
  3. Tseng, Mei-Chiun, 2004. "Strategic choice of flexible manufacturing technologies," International Journal of Production Economics, Elsevier, vol. 91(3), pages 223-227, October.
  4. Bárcena Ruiz, Juan Carlos & Olaizola Ortega, María Norma, 2004. "Cost-Saving production technologies and strategic delegation," IKERLANAK 2004-12, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  5. Elkins, Debra A. & Huang, Ningjian & Alden, Jeffrey M., 2004. "Agile manufacturing systems in the automotive industry," International Journal of Production Economics, Elsevier, vol. 91(3), pages 201-214, October.
  6. Kim, Taekwon & Roller, Lars-Hendrik & Tombak, Mihkel M, 1992. "Strategic Choice of Flexible Production Technologies and Welfare Implications: Addendum et Corrigendum," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 233-35, June.
  7. Ana I. Saracho, 2002. "Patent Licensing Under Strategic Delegation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(2), pages 225-251, 06.
  8. Anderson, Simon P & Engers, Maxim, 1994. "Strategic Investment and Timing of Entry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 833-53, November.
  9. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  10. Roller, Lars-Hendrik & Tombak, Mihkel M, 1990. "Strategic Choice of Flexible Production Technologies and Welfare Implications," Journal of Industrial Economics, Wiley Blackwell, vol. 38(4), pages 417-31, June.
  11. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  12. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  13. Carlos Barcena-Ruiz, Juan & Paz Espinosa, Maria, 1999. "Should multiproduct firms provide divisional or corporate incentives?," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 751-764, July.
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