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Value chain structure and �exible production technologies

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  • Nepelski, Daniel

Abstract

Industries are transformed by the adoption of flexible production technologies and complementary changes in firms' organization. Some of the results of this transformation include companies extending their product lines and reshaping their relationships with outside partners. In this paper I analyze how the structure of the upstream industry influences upstream manufacturers' decisions regarding the choice of production technologies that enable them to extend product variety. The results of a theoretical model with two pairs of supply chains in which producers procure inputs from either two or a single supplier reveal that the benefits of new technologies to manufacturers might be eroded. In particular, an increased intrabrand competition and the introduction of inter-brand competition have adverse effect on producers' payoffs. Eventually, the choice made by downstream manufacturers departs from the socially optimal outcome.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26236.

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Date of creation: 01 Mar 2009
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Handle: RePEc:pra:mprapa:26236

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Keywords: flexible production technologies; merger; supply chain; vertical relations;

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  1. 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.
  2. Chiara Fumagalli & Massimo Motta, 2006. "Exclusive Dealing and Entry, when Buyers Compete," American Economic Review, American Economic Association, vol. 96(3), pages 785-795, June.
  3. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  4. Roman Inderst & Christian Wey, 2001. "Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," CIG Working Papers FS IV 01-19, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  5. Salinger, Michael A, 1989. "The Meaning of "Upstream" and "Downstream" and the Implications for Modeling Vertical Mergers," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 373-87, June.
  6. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  7. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
  8. 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.
  9. 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.
  10. 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.
  11. Emek Basker, 2006. "The Causes and Consequences of Wal-Mart's Growth," Working Papers 0611, Department of Economics, University of Missouri.
  12. Matutes, Carmen & Regibeau, Pierre, 1989. "Standardization across Markets and Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 359-71, June.
  13. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  14. Inderst, Roman & Wey, Christian, 2002. "Buyer Power and Supplier Incentives," CEPR Discussion Papers 3547, C.E.P.R. Discussion Papers.
  15. Hempell, Thomas & Zwick, Thomas, 2005. "Technology Use, Organisational Flexibility and Innovation: Evidence for Germany," ZEW Discussion Papers 05-57, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  16. Eaton, B Curtis & Schmitt, Nicolas, 1994. "Flexible Manufacturing and Market Structure," American Economic Review, American Economic Association, vol. 84(4), pages 875-88, September.
  17. Baake, Pio & Kamecke, Ulrich & Normann, Hans-Theo, 2004. "Vertical foreclosure versus downstream competition with capital precommitment," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 185-192, February.
  18. 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.
  19. Gupta, Sudheer, 1998. "A Note on 'Strategic Choice of Flexible Production Technologies and Welfare Implications.'," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 403, September.
  20. Milliou, Chrysovalantou & Petrakis, Emmanuel, 2007. "Upstream horizontal mergers, vertical contracts, and bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 963-987, October.
  21. Ziss, Steffen, 1995. "Vertical Separation and Horizontal Mergers," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 63-75, March.
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