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The Relative Advantages of Flexible versus Designated Manufacturing Technologies

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  • George Norman

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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

Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0019.

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Date of creation: 2000
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Handle: RePEc:tuf:tuftec:0019

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  1. W. B. MacLeod & G. Norman & J.F. Thisse, 1987. "Price Discrimination and Equilibrium in Monopolistic Competition," Working Papers 701, Queen's University, Department of Economics.
  2. Milgrom, Paul & Roberts, John, 1995. "The Economics of Modern Manufacturing: Reply," American Economic Review, American Economic Association, vol. 85(4), pages 997-99, September.
  3. Curtis Eaton, B. & Schmitt, N., 1991. "Flexible Manufacturing and Market Structure," Papers 1991-02, Tasmania - Department of Economics.
  4. 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.
  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. Lars-Hendrik Röller & Mihkel M. Tombak, 1993. "Competition and Investment in Flexible Technologies," Management Science, INFORMS, vol. 39(1), pages 107-114, January.
  7. Massimo Motta & George Norman, 1993. "Does economic integration cause foreign direct investment?," Economics Working Papers 28, Department of Economics and Business, Universitat Pompeu Fabra.
  8. 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.
  9. Norman, G., 1999. "Technology choice and market structure: Strategic aspects of flexible manufacturing. J. Indust. Econ," Open Access publications from Université catholique de Louvain info:hdl:2078.1/44783, Université catholique de Louvain.
  10. 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. Darlene Chisholm & George Norman, 2002. "Heterogeneous Preferences and Location Choice with Multi-Product Firms," Discussion Papers Series, Department of Economics, Tufts University 0205, Department of Economics, Tufts University.

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