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Capacity Commitment Versus Flexibility: The Technological Choice Nexus in a Strategic Context

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  • Marcel Boyer

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  • Michel Moreaux

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Abstract

This paper deals with the underlying factors explaining the stylized fact that Japan invests significantly more in flexible manufacturing technologies than the United States and Europe. We show how technological flexibility choices and equilibrium (both simultaneous and sequential) configurations in different industries depend on six industry characteristics and how changes in those characteristics are likely to affect the technological flexibility configuration observed. Low market volatility combined with intermediate market size will favor inflexible technologies; large values of either volatility or size will favor flexible and inflexible technologies. The possibility of a flexibility trap exists in industries characterized by low market volatility and intermediate market size. Finally, inflexible technologies can be part of an entry preventing strategy in some industries while flexible technologies can be in other industries. Nous considérons le fait stylisé voulant les investissements dans les technologies flexibles de production soient beaucoup plus importants au Japon qu'aux États-Unis et en Europe. Nous montrons comment les choix et équilibres de flexibilité (simultanés ou séquentiels) dépendent de six caractéristiques de l'industrie et comment ils sont susceptibles d'être affectés par des changements dans ces caractéristiques. Les industries de faible volatilité et de taille intermédiaire favorisent les technologies inflexibles; celles de volatilité ou de taille élevée favorisent les technologies flexibles; celles de volatilité et de taille faibles ou moyennes favorisent la coexistence de technologies flexibles et inflexibles. La possibilité d'une trappe de flexibilité existe lorsque la volatilité est faible et la taille est intermédiaire. Enfin, la flexibilité pourra servir de barrière à l'entrée dans certaines industries alors que l'inflexibilité le pourra dans d'autres industries.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 95s-35.

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Date of creation: 01 Jan 1995
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Handle: RePEc:cir:cirwor:95s-35

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  1. Milgrom, Paul & Roberts, John, 1995. "The Economics of Modern Manufacturing: Reply," American Economic Review, American Economic Association, vol. 85(4), pages 997-99, September.
  2. Boyer, M. & Moreaux, A., 1989. "Uncertainty, Capacity and Flexibility: the Monopoly Case," Cahiers de recherche 8911, Universite de Montreal, Departement de sciences economiques.
  3. Daughety, Andrew F & Reinganum, Jennifer F, 1994. "Asymmetric Information Acquisition and Behavior in Role Choice Models: An Endogenously Generated Signaling Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 795-819, November.
  4. Spencer, Barbara J. & Brander, James A., 1992. "Pre-commitment and flexibility : Applications to oligopoly theory," European Economic Review, Elsevier, vol. 36(8), pages 1601-1626, December.
  5. Sadanand, V. & Green, E.J., 1991. "Firm Scale and the Endogenous Timing of Entry : A Choice Between Commitment and Flexibility," Working Papers 1991-11, University of Guelph, Department of Economics and Finance.
  6. Eaton, B Curtis & Schmitt, Nicolas, 1994. "Flexible Manufacturing and Market Structure," American Economic Review, American Economic Association, vol. 84(4), pages 875-88, September.
  7. Sadanand, Asha & Sadanand, Venkatraman, 1996. "Firm Scale and the Endogenous Timing of Entry: a Choice between Commitment and Flexibility," Journal of Economic Theory, Elsevier, vol. 70(2), pages 516-530, August.
  8. Kulatilaka, Nalin & Marks, Stephen Gary, 1988. "The Strategic Value of Flexibility: Reducing the Ability to Compromise," American Economic Review, American Economic Association, vol. 78(3), pages 574-80, June.
  9. Lars-Hendrik Röller & Mihkel M. Tombak, 1993. "Competition and Investment in Flexible Technologies," Management Science, INFORMS, vol. 39(1), pages 107-114, January.
  10. Marcel Boyer, 1991. "Leadership, Flexibility, and Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 24(4), pages 751-73, November.
  11. Jones, Robert A & Ostroy, Joseph M, 1984. "Flexibility and Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 13-32, January.
  12. 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.
  13. George Stigler, 1939. "Production and Distribution in the Short Run," Journal of Political Economy, University of Chicago Press, vol. 47, pages 305.
  14. Donald Gerwin, 1993. "Manufacturing Flexibility: A Strategic Perspective," Management Science, INFORMS, vol. 39(4), pages 395-410, April.
  15. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-12, December.
  16. Fine, Charles H. & Pappu, Suguna., 1990. "Flexible manufacturing technology and product-market competition," Working papers 3135-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  17. Vives, Xavier, 1989. "Technological competition, uncertainty, and oligopoly," Journal of Economic Theory, Elsevier, vol. 48(2), pages 386-415, August.
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Cited by:
  1. Marcel Boyer & Jacques Robert, 1996. "Ex Ante Incentives and Ex Post Flexibility," CIRANO Working Papers 96s-14, CIRANO.
  2. Amigues, J-P & Favard, P & Gaudet, G & Moreaux, M, 1996. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute is Limited," Cahiers de recherche 9628, Universite de Montreal, Departement de sciences economiques.
  3. Touhami, A. & Martens, A., 1996. "Macroemesures in Computable General Equilibrium Models: a Probabilistic Treatment with an Application to Morocco," Cahiers de recherche 9621, Universite de Montreal, Departement de sciences economiques.

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