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Abstract

The number of different car and light truck models produced in North America has increased enormously over the last decades. The data suggests that producing this increased variety of vehicles is associated with a productivity penalty. We show that manufacturers can adopt complementary activities to reduce this penalty. Flexible technology, defined as the ability to assemble models derived from different %u201Cplatforms%u201D on the same assembly line, and bringing previously outsourced activities in-house are two such activities that we identify. Both are costly themselves, in terms of lower productivity, but they reduce the cost of producing greater variety. The results are robust to controlling for the endogeneity of the adoption decisions using activity-specific instruments, as proposed by Athey and Stern (2003).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12131.

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Date of creation: Apr 2006
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Handle: RePEc:nbr:nberwo:12131

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Find related papers by JEL classification:

• L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
• L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
• L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
• M11 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Production Management

This paper has been announced in the following NEP Reports:

• NEP-ALL-2006-04-22 (All new papers)
• NEP-INO-2006-04-22 (Innovation)

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1. 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.
   
   • George Norman, 2000. "The Relative Advantages of Flexible versus Designated Manufacturing Technologies," Discussion Papers Series, Department of Economics, Tufts University 0019, Department of Economics, Tufts University.
2. Sourafel Girma & Holger Görg, 2004. "Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 817-832, November.
   
   • Sourafel Girma & Holger Görg, 2003. "Outsourcing, Foreign Ownership and Productivity: Evidence from UK Establishment Level Data," Discussion Papers of DIW Berlin 361, DIW Berlin, German Institute for Economic Research.
3. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
4. Boyan Jovanovic & Dmitriy Stolyarov, 1997. "Learning, Complementarities, and Asynchronous Use of Technology," NBER Working Papers 5870, National Bureau of Economic Research, Inc.
5. A. F. Friedlaender & C. Winston & D. K. Wang, 1982. "Costs, Technology and Productivity in the U. S. Automobile Industry," Working papers 294, Massachusetts Institute of Technology (MIT), Department of Economics.
   
   • Ann F. Friedlaender & Clifford Winston & Kung Wang, 1983. "Costs, Technology, and Productivity in the U.S. Automobile Industry," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 1-20, Spring.
6. Johannes van Biesebroeck, 2003. "Productivity Dynamics with Technology Choice: An Application to Automobile Assembly," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 167-198.
   
   • Johannes Van Biesebroeck, 2003. "Productivity Dynamics with Technology Choice: An Application to Automobile Assembly," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 167-198, January.
7. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
8. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
9. Arora, Ashish, 1996. "Testing for complementarities in reduced-form regressions: A note," Economics Letters, Elsevier, vol. 50(1), pages 51-55, January.
10. Gal-Or, Esther, 2002. "Flexible manufacturing systems and the internal structure of the firm," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1061-1096, October.
11. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
12. Jovanovic, Boyan & Stolyarov, Dmitriy, 1997. "Optimal Adoption of Complementary Technologies," Working Papers 97-27, C.V. Starr Center for Applied Economics, New York University.
    
    • Dmitriy Stolyarov & Boyan Jovanovic, 2000. "Optimal Adoption of Complementary Technologies," American Economic Review, American Economic Association, vol. 90(1), pages 15-29, March.
13. Susan Athey & Scott Stern, 1998. "An Empirical Framework for Testing Theories About Complimentarity in Organizational Design," NBER Working Papers 6600, National Bureau of Economic Research, Inc.
14. Arora, Ashish & Gambardella, Alfonso, 1990. "Complementarity and External Linkages: The Strategies of the Large Firms in Biotechnology," Journal of Industrial Economics, Wiley Blackwell, vol. 38(4), pages 361-79, June.
15. John MacDuffie, 1995. "Human resource bundles and manufacturing performance: Organizational logic and flexible production systems in the world auto industry," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 48(2), pages 197-221, January.
16. Susan Helper, 1997. "Complementarity and Cost Reduction: Evidence from the Auto Supply Industry," NBER Working Papers 6033, National Bureau of Economic Research, Inc.

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Citations

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Cited by:

1. Nicholas Bloom & John Van Reenen, 2010. "Human Resource Management and Productivity," NBER Working Papers 16019, National Bureau of Economic Research, Inc.
   
   • Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, Elsevier.
   • Nicholas Bloom & John Van Reenen, 2010. "Human Resource Management and Productivity," CEP Discussion Papers dp0982, Centre for Economic Performance, LSE.
   • Bloom, Nicholas & Van Reenen, John, 2010. "Human Resource Management and Productivity," CEPR Discussion Papers 7849, C.E.P.R. Discussion Papers.
2. Alla Lileeva & Johannes Van Biesebroeck, 2007. "Outsourcing when Investments are Specific and Complementary," Working Papers tecipa-287, University of Toronto, Department of Economics.
   
   • Lileeva, Alla & Van Biesebroeck, Johannes, 2008. "Outsourcing when investments are specific and complementary," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/253799, Katholieke Universiteit Leuven.
   • Alla Lileeva & Johannes Van Biesebroeck, 2008. "Outsourcing when Investments are Specific and Complementary," NBER Working Papers 14477, National Bureau of Economic Research, Inc.
   • Lileeva, Alla & Van Biesebroeck, Johannes, 2007. "Outsourcing when investments are specific and complementary," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/253902, Katholieke Universiteit Leuven.
3. TAKEDA Yosuke & UCHIDA Ichihiro, 2009. "Technological Externalities and Economic Distance: A case of the Japanese automobile suppliers," Discussion papers 09051, Research Institute of Economy, Trade and Industry (RIETI).
4. Sharon Novak & Scott Stern, 2007. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," NBER Working Papers 13232, National Bureau of Economic Research, Inc.
5. Van Reenen, John, 2011. "Does competition raise productivity through improving management quality?," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 306-316, May.
   
   • John Van Reenen, 2010. "Does Competition Raise Productivity Through Improving Management Quality?," CEP Discussion Papers dp1036, Centre for Economic Performance, LSE.
6. Hideshi Itoh & Tatsuya Kikutani & Osamu Hayashida, 2008. "Complementarities among authority, accountability, and monitoring: Evidence from Japanese business groups," NBER Chapters, in: Organizational Innovation and Firm Performance, pages 207-228 National Bureau of Economic Research, Inc.
   
   • Itoh, Hideshi & Kikutani, Tatsuya & Hayashida, Osamu, 2008. "Complementarities among authority, accountability, and monitoring: Evidence from Japanese business groups," Journal of the Japanese and International Economies, Elsevier, vol. 22(2), pages 207-228, June.
7. Casey Ichniowski & Kathryn L. Shaw, 2009. "Insider Econometrics: Empirical Studies of How Management Matters," NBER Working Papers 15618, National Bureau of Economic Research, Inc.
8. Shaw, Kathryn, 2009. "Insider econometrics: A roadmap with stops along the way," Labour Economics, Elsevier, vol. 16(6), pages 607-617, December.

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