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The relative advantages of flexible versus designated manufacturing technologies

  • Norman, George

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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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 32 (2002)
Issue (Month): 4 (July)
Pages: 419-445

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Handle: RePEc:eee:regeco:v:32:y:2002:i:4:p:419-445
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  1. Motta, Massimo & Norman, George, 1996. "Does Economic Integration Cause Foreign Direct Investment?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 757-83, November.
  2. Curtis Eaton, B. & Schmitt, N., 1991. "Flexible Manufacturing and Market Structure," Papers 1991-02, Tasmania - Department of Economics.
  3. 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.
  4. 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.
  5. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  6. Macleod, W.B. & Norman, G. & Thisse, J.-F., 1985. "Price discrimination and equilibrium in monopolistic competition," CORE Discussion Papers 1985006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. NORMAN, George & THISSE, Jacques-François, 1996. "Technology choice and market structure : strategic aspects of flexible manufacturing," CORE Discussion Papers 1996059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Anderson, Simon P & Neven, Damien J, 1991. "Cournot Competition Yields Spatial Agglomeration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 793-808, November.
  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. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  11. Milgrom, Paul & Roberts, John, 1995. "The Economics of Modern Manufacturing: Reply," American Economic Review, American Economic Association, vol. 85(4), pages 997-99, September.
  12. 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.
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