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Competition and investment in flexible technologies

Author: Röller, Lars-Hendrik ; Tombak, MihkelINSEAD Area: Economics and Political ScienceIn: Management Science, vol. 39, no. 1, January 1993 Language: EnglishDescription: p. 107-114.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: 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 the US and Japan
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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 the US and Japan

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