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Digitalisation of Production: Industrial Additive Manufacturing and its Implications for Competition and Social Welfare

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  • Julian Schwierzy

    (Technical University of Munich)

Abstract

The production flexibility of digital factories has the potential to revolutionise traditional manufacturing (TM) and thereby unlock a paradigm shift in production. In particular, the role of additive manufacturing (AM) technologies is gaining increased attention. Most experts consider AM as a complement to traditional manufacturing technologies. In this paper, I examine how the adoption of AM changes competition and how the coexistence with TM affects social welfare in the long-run. The results of my game-theoretical model indicate a decline in the number of companies with TM and an increase in market concentration. I show that the effect of AM adoption on prices and welfare depends on the cost structure of AM technologies. Unless the cost of AM is below a certain cut-off, its adoption is associated with a rise in prices and a decline in social welfare. The coexistence of both technologies in the same product market is therefore not necessarily beneficial for society. Based on these findings, I discuss policy implications for the stimulation of the digital transformation in the manufacturing industry. I argue that marginal cost reducing policy measures lead to a higher welfare effect than fixed cost reducing programmes.

Suggested Citation

  • Julian Schwierzy, 2021. "Digitalisation of Production: Industrial Additive Manufacturing and its Implications for Competition and Social Welfare," Munich Papers in Political Economy 16, Munich School of Politics and Public Policy and the School of Management at the Technical University of Munich.
    • Handle: RePEc:aiw:wpaper:16
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    References listed on IDEAS

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    5. Baumol, William J & Panzar, John C & Willig, Robert D, 1983. "Contestable Markets: An Uprising in the Theory of Industry Structure: Reply," American Economic Review, American Economic Association, vol. 73(3), pages 491-496, June.
    6. Kleer, Robin & Piller, Frank T., 2019. "Local manufacturing and structural shifts in competition: Market dynamics of additive manufacturing," International Journal of Production Economics, Elsevier, vol. 216(C), pages 23-34.
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    9. repec:bla:jindec:v:47:y:1999:i:3:p:345-72 is not listed on IDEAS
    10. Ghobadian, Abby & Talavera, Irene & Bhattacharya, Arijit & Kumar, Vikas & Garza-Reyes, Jose Arturo & O'Regan, Nicholas, 2020. "Examining legitimatisation of additive manufacturing in the interplay between innovation, lean manufacturing and sustainability," International Journal of Production Economics, Elsevier, vol. 219(C), pages 457-468.
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    Cited by:

    1. Julian Schwierzy & Robert Dehghan & Sebastian Schmidt & Elisa Rodepeter & Andreas Stoemmer & Kaan Uctum & Jan Kinne & David Lenz & Hanna Hottenrott, 2022. "Technology Mapping Using WebAI: The Case of 3D Printing," Papers 2201.01125, arXiv.org.

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    More about this item

    Keywords

    Digital factories; Technology adoption; Market structure; Social welfare; Product differentiation; Digitalisation; Industrial Additive Manufacturing;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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