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Complementarities in Automobile Production

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  • Johannes Van Biesebroeck

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 "platforms" 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).

Suggested Citation

  • Johannes Van Biesebroeck, 2006. "Complementarities in Automobile Production," NBER Working Papers 12131, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12131
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    Cited by:

    1. Timothy Bresnahan & Jonathan Levin, 2012. "Vertical Integration and Market Structure," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.),The Handbook of Organizational Economics, Princeton University Press.
    2. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 19, pages 1697-1767, Elsevier.
    3. Alla Lileeva & Johannes Van Biesebroeck, 2013. "Outsourcing When Investments Are Specific And Interrelated," Journal of the European Economic Association, European Economic Association, vol. 11(4), pages 871-896, August.
    4. 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).
    5. Sharon Novak & Scott Stern, 2009. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," Management Science, INFORMS, vol. 55(2), pages 311-332, February.
    6. Phillipe Aghion & Nicholas Bloom & John Van Reenen, 2014. "Incomplete Contracts and the Internal Organization of Firms," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(suppl_1), pages 37-63.
    7. 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.
    8. Rivaldo A. B. Kpadonou & Bruno Barbier & Tom Owiyo & Fatima Denton & Franck Rutabingwa, 2019. "Manure and adoption of modern seeds in cereal‐based systems in West African drylands: linkages and (non)complementarities," Natural Resources Forum, Blackwell Publishing, vol. 43(1), pages 41-55, February.
    9. 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.
    10. Timothy J. Sturgeon & Johannes Van Biesebroeck & Gary Gereffi, 2009. "The North American automotive value chain: Canada's role and prospects," International Journal of Technological Learning, Innovation and Development, Inderscience Enterprises Ltd, vol. 2(1/2), pages 25-52.
    11. Shaw, Kathryn, 2009. "Insider econometrics: A roadmap with stops along the way," Labour Economics, Elsevier, vol. 16(6), pages 607-617, December.
    12. De Chiara, Alessandro, 2020. "Precontractual investment and modes of procurement," European Economic Review, Elsevier, vol. 124(C).
    13. Chou, Mabel C. & Chua, Geoffrey A. & Teo, Chung-Piaw, 2010. "On range and response: Dimensions of process flexibility," European Journal of Operational Research, Elsevier, vol. 207(2), pages 711-724, December.
    14. Abolhassani, Amir & James Harner, E. & Jaridi, Majid, 2019. "Empirical analysis of productivity enhancement strategies in the North American automotive industry," International Journal of Production Economics, Elsevier, vol. 208(C), pages 140-159.
    15. Viete, Steffen & Erdsiek, Daniel, 2020. "Mobile Information Technologies and Firm Performance: The Role of Employee Autonomy," Information Economics and Policy, Elsevier, vol. 51(C).
    16. Mabel C. Chou & Geoffrey A. Chua & Chung-Piaw Teo & Huan Zheng, 2010. "Design for Process Flexibility: Efficiency of the Long Chain and Sparse Structure," Operations Research, INFORMS, vol. 58(1), pages 43-58, February.
    17. McCalman, Phillip & Spearot, Alan, 2013. "Why trucks jump: Offshoring and product characteristics," Journal of International Economics, Elsevier, vol. 91(1), pages 82-95.
    18. 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.
    19. Mabel C. Chou & Geoffrey A. Chua & Huan Zheng, 2014. "On the Performance of Sparse Process Structures in Partial Postponement Production Systems," Operations Research, INFORMS, vol. 62(2), pages 348-365, April.
    20. Casey Ichniowski & Kathryn L. Shaw, 2009. "Insider Econometrics: Empirical Studies of How Management Matters," NBER Working Papers 15618, National Bureau of Economic Research, Inc.

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    More about this item

    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; Related Parts and Equipment
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

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