Complementarity and Cost Reduction: Evidence from the Auto Supply Industry

43 Pages Posted: 1 Aug 2000 Last revised: 29 Jun 2010

See all articles by Susan Helper

Susan Helper

Case Western Reserve University - Department of Economics

Date Written: May 1997

Abstract

Over the last 20 years, the success of Japanese manufacturing firms has brought renewed attention to the importance of cost reduction on existing products as a source of productivity growth. This paper uses survey data and field interviews from the auto supply industry to explore the determinants of average-cost reduction for a sample of 171 plants in the United States and Canada between 1988 and 1992. The main result is that the determinants of cost reduction differ markedly between firms which had employee involvement programs in 1988 and firms that did not. The two groups of firms achieved equal amounts of cost reduction, but did so in very different ways. Firms with employee involvement saw their costs fall more if they also had such involvement gained no cost-reduction benefit from these programs; instead, their cost-reduction success was largely a function of increases in volume. These results provide support for Milgrom and Roberts's concept that certain production practices exhibit complementarity.

Suggested Citation

Helper, Susan, Complementarity and Cost Reduction: Evidence from the Auto Supply Industry (May 1997). NBER Working Paper No. w6033, Available at SSRN: https://ssrn.com/abstract=226443

Susan Helper (Contact Author)

Case Western Reserve University - Department of Economics ( email )

Cleveland, OH 44106
United States
216-368-5541 (Phone)
216-368-5542 (Fax)

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