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Competition and Investment in Flexible Technologies

Author

Listed:
  • Lars-Hendrik Röller

    (European Institute of Business Administration (INSEAD), Boulevard de Constance, 77305 Fontainebleau Cedex, France)

  • Mihkel M. Tombak

    (European Institute of Business Administration (INSEAD), Boulevard de Constance, 77305 Fontainebleau Cedex, France)

Abstract

This paper examines the implications of market structure on investment in flexible manufacturing systems (FMS). We analyze a two-stage game, in which firms choose between a flexible and a less flexible technology in the first stage, then choose production quantities in the second stage. In equilibrium, a large proportion of FMS firms is associated with more concentrated markets. Our model predicts that a larger market and/or a more differentiated product results in a higher proportion of FMS firms being sustained. These predictions are empirically supported using cross-section industry level data from both the US and Japan.

Suggested Citation

  • Lars-Hendrik Röller & Mihkel M. Tombak, 1993. "Competition and Investment in Flexible Technologies," Management Science, INFORMS, vol. 39(1), pages 107-114, January.
    • Handle: RePEc:inm:ormnsc:v:39:y:1993:i:1:p:107-114
    DOI: 10.1287/mnsc.39.1.107
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