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The relative advantages of flexible versus designated manufacturing technologies

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  • Norman, George

Abstract

This paper analyzes the choice between flexible and designated manufacturing technologies given that firms are allowed to determine how flexible the manufacturing system should be. We allow firms to operate a mix of technologies, using a flexible system to serve some types of consumer submarkets and a designated technology to serve others and allow firms to offer multiple products even if they commit to the designated technology. We show that for flexible systems to be preferred they must offer strong economies of scope and must be capable of producing, without significant cost penalties, customized products that are largely indistinguishable from custom-built products. By contrast, we show that an increase in submarket size and an increase in the willingness of consumers to pay for particular types of products encourages the use of designated technologies targeted at these submarkets.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 32 (2002)
Issue (Month): 4 (July)
Pages: 419-445

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Handle: RePEc:eee:regeco:v:32:y:2002:i:4:p:419-445

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References

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  1. Rowthorn, R E, 1992. "Intra-industry Trade and Investment under Oligopoly: The Role of Market Size," Economic Journal, Royal Economic Society, vol. 102(411), pages 402-14, March.
  2. Massimo Motta & George Norman, 1993. "Does economic integration cause foreign direct investment?," Economics Working Papers 28, Department of Economics and Business, Universitat Pompeu Fabra.
  3. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  5. Hamilton, Jonathan H. & Thisse, Jacques-Francois & Weskamp, Anita, 1989. "Spatial discrimination : Bertrand vs. Cournot in a model of location choice," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 87-102, February.
  6. George Norman & Jacques-François Thisse, 1998. "Technology Choice and Market Structure: Strategic Aspects of Flexible Manufacturing," Discussion Papers Series, Department of Economics, Tufts University 9808, Department of Economics, Tufts University.
  7. Anderson, Simon P & Neven, Damien J, 1991. "Cournot Competition Yields Spatial Agglomeration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 793-808, November.
  8. Milgrom, Paul & Roberts, John, 1995. "The Economics of Modern Manufacturing: Reply," American Economic Review, American Economic Association, vol. 85(4), pages 997-99, September.
  9. Eaton, B Curtis & Schmitt, Nicolas, 1994. "Flexible Manufacturing and Market Structure," American Economic Review, American Economic Association, vol. 84(4), pages 875-88, September.
  10. McLEOD, W.B. & NORMAN, G. & THISSE, J.-F., . "Price discrimination and equilibrium in monopolistic competition," CORE Discussion Papers RP -828, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Lars-Hendrik Röller & Mihkel M. Tombak, 1993. "Competition and Investment in Flexible Technologies," Management Science, INFORMS, vol. 39(1), pages 107-114, January.
  12. Chang, Myong-Hun, 1993. "Flexible Manufacturing, Uncertain Consumer Tastes, and Strategic Entry Deterrence," Journal of Industrial Economics, Wiley Blackwell, vol. 41(1), pages 77-90, March.
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Cited by:
  1. Johannes Van Biesebroeck, 2006. "Complementarities in Automobile Production," NBER Working Papers 12131, National Bureau of Economic Research, Inc.
  2. Chisholm, Darlene C. & Norman, George, 2004. "Heterogeneous preferences and location choice with multi-product firms," Regional Science and Urban Economics, Elsevier, vol. 34(3), pages 321-339, May.
  3. 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.

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