Capacity Commitment Versus Flexibility: The Technological Choice Nexus in a Strategic Context

This paper deals with the underlying factors explaining the stylized fact that Japan invests significantly more in flexible manufacturing technologies than the United States and Europe. We show how technological flexibility choices and equilibrium (both simultaneous and sequential) configurations in different industries depend on six industry characteristics and how changes in those characteristics are likely to affect the technological flexibility configuration observed. Low market volatility combined with intermediate market size will favor inflexible technologies; large values of either volatility or size will favor flexible and inflexible technologies. The possibility of a flexibility trap exists in industries characterized by low market volatility and intermediate market size. Finally, inflexible technologies can be part of an entry preventing strategy in some industries while flexible technologies can be in other industries.
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