Incentive Asymmetry between Early and Late Comers in Adopting Flexible Mass Production: A Spatial Model
Working Paper Series No. 63
Posted: 24 Aug 1998
Flexible mass production (FMP) is specified in terms of the cost of switching fixed inputs to produce differentiated products. Incorporating this concept into a model of spatial competition, we show that, while the late comers may need FMP technology to enter an established market, for the early comers not adopting FMP can be the equilibrium in a noncooperative game of spatial competition. Entry threat may or may not adequately change the incumbents' incentive structure to induce them to adopt FMP. The paper sheds light on questions like why it was the Japanese, not Detroit, who first adopted FMP. The welfare implications of entry are also studied.
JEL Classification: D24
Suggested Citation: Suggested Citation