Timing of Adopting a Flexible Manufacturing System and Product Differentiation

  • 1 Department of Economics, Soochow University, No. 56, Kueiyang Street, Section 1, Taipei, Taiwan
Chia-Hung Sun
  • Corresponding author
  • Department of Economics, Soochow University, No. 56, Kueiyang Street, Section 1, Taipei, 100, Taiwan
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Abstract

Based on a circular product-space model with continuous time, we investigate a dynamic game in which each firm decides whether and when to adopt a flexible manufacturing system (FMS) at the beginning of the game and then chooses its quantity supplied at each time. We show that the equilibrium outcomes may be either joint adoption at the beginning of the game or sequential adoption, depending on the range of an initial adoption cost. For a given basic product, we find that a larger product differentiation decelerates the adoption of FMS. We also investigate competition behavior when the decisions on product locations are made endogenously and conduct welfare analysis, showing that there is market failure in the adoption timing choices.

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