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Timing of Adopting a Flexible Manufacturing System and Product Differentiation

Author

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  • Sun Chia-Hung

    (Department of Economics, Soochow University, No. 56, Kueiyang Street, Section 1, Taipei100, Taiwan)

Abstract

Based on a circular product-space model with continuous time, we investigate a dynamic game in which each firm decides whether and when to adopt a flexible manufacturing system (FMS) at the beginning of the game and then chooses its quantity supplied at each time. We show that the equilibrium outcomes may be either joint adoption at the beginning of the game or sequential adoption, depending on the range of an initial adoption cost. For a given basic product, we find that a larger product differentiation decelerates the adoption of FMS. We also investigate competition behavior when the decisions on product locations are made endogenously and conduct welfare analysis, showing that there is market failure in the adoption timing choices.

Suggested Citation

  • Sun Chia-Hung, 2020. "Timing of Adopting a Flexible Manufacturing System and Product Differentiation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(2), pages 1-17, April.
    • Handle: RePEc:bpj:bejeap:v:20:y:2020:i:2:p:17:n:12
    DOI: 10.1515/bejeap-2019-0094
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    More about this item

    Keywords

    flexible manufacturing system; timing game; technology diffusion; precommitment game; preemption game;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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