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Flexible Manufacturing, Uncertain Consumer Tastes, and Strategic Entry Deterrence

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  • Chang, Myong-Hun

Abstract

This paper investigates the strategic use of flexible manufacturing technology as an entry-deterring mechanism. It is shown that, when consumers' tastes fluctuate probabilistically , an incumbent threatened with potential entry installs flexible manufacturing technology for a larger set of probabilities that consumers' tastes will change than the perfectly protected monopolis t. The differential probability sets represent the intent of the monopo ly incumbent strategically to use product-design flexibility for deterr ing entry into the potential market and maintain its dominance under fluctuating consumer tastes. This purely preemptive flexibility is shown to exist under reasonable assumptions on the firms' payoff structure. Copyright 1993 by Blackwell Publishing Ltd.

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  • 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.
  • Handle: RePEc:bla:jindec:v:41:y:1993:i:1:p:77-90
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    References listed on IDEAS

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    Cited by:

    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.
    2. Louis Amato & Christie Amato, 2000. "The Impact of High Tech Production Techniques on Productivity and Profitability in Selected U.S. Manufacturing Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 16(4), pages 327-342, June.
    3. Hao Wang, 2007. "Uncertain Consumer Tastes and Two-Part Tariff," Microeconomics Working Papers 22714, East Asian Bureau of Economic Research.
    4. 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.
    5. Norman, George & Thisse, Jacques-Francois, 1999. "Technology Choice and Market Structure: Strategic Aspects of Flexible Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 345-372, September.
    6. Joon Lim, 2009. "Strategic Choice of Manufacturing Flexibility in Intermediate Goods Markets," Korean Economic Review, Korean Economic Association, vol. 25, pages 91-104.
    7. Boonman, H.J. & Hagspiel, V. & Kort, P.M., 2015. "Dedicated vs product flexible production technology: Strategic capacity investment choice," European Journal of Operational Research, Elsevier, vol. 244(1), pages 141-152.
    8. Weller, Christian & Kleer, Robin & Piller, Frank T., 2015. "Economic implications of 3D printing: Market structure models in light of additive manufacturing revisited," International Journal of Production Economics, Elsevier, vol. 164(C), pages 43-56.
    9. Ana Faria & Paul Fenn & Alistair Bruce, 2002. "Determinants of adoption of flexible production technologies: Evidence from portuguese manufacturing industry," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(6), pages 569-580.
    10. Tseng, Mei-Chiun, 2004. "Strategic choice of flexible manufacturing technologies," International Journal of Production Economics, Elsevier, vol. 91(3), pages 223-227, October.

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