Digitalisation of Production: Industrial Additive Manufacturing and its Implications for Competition and Social Welfare

Julian Schwierzy ()
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Julian Schwierzy: Technical University of Munich

Munich Papers in Political Economy from Munich School of Politics and Public Policy and the School of Management at the Technical University of Munich

Abstract: The production flexibility of digital factories has the potential to revolutionise traditional manufacturing (TM) and thereby unlock a paradigm shift in production. In particular, the role of additive manufacturing (AM) technologies is gaining increased attention. Most experts consider AM as a complement to traditional manufacturing technologies. In this paper, I examine how the adoption of AM changes competition and how the coexistence with TM affects social welfare in the long-run. The results of my game-theoretical model indicate a decline in the number of companies with TM and an increase in market concentration. I show that the effect of AM adoption on prices and welfare depends on the cost structure of AM technologies. Unless the cost of AM is below a certain cut-off, its adoption is associated with a rise in prices and a decline in social welfare. The coexistence of both technologies in the same product market is therefore not necessarily beneficial for society. Based on these findings, I discuss policy implications for the stimulation of the digital transformation in the manufacturing industry. I argue that marginal cost reducing policy measures lead to a higher welfare effect than fixed cost reducing programmes.

Keywords: Digital factories; Technology adoption; Market structure; Social welfare; Product differentiation; Digitalisation; Industrial Additive Manufacturing (search for similar items in EconPapers)
JEL-codes: L11 L22 L23 O33 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2021-11
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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