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Complementarities in automobile production
Author(s) -
Biesebroeck Johannes Van
Publication year - 2007
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.995
Subject(s) - variety (cybernetics) , productivity , endogeneity , production (economics) , stern , truck , automotive industry , industrial organization , computer science , assembly line , operations research , business , economics , econometrics , microeconomics , engineering , artificial intelligence , automotive engineering , mechanical engineering , marine engineering , macroeconomics , aerospace engineering
The number of different car and light truck models produced in North America has increased enormously over the last decades. The data suggests that producing this increased variety of vehicles is associated with a productivity penalty. We show that manufacturers can adopt complementary activities to reduce this penalty. Flexible technology, defined as the ability to assemble models derived from different ‘platforms’ on the same assembly line, and bringing previously outsourced activities in‐house are two such activities that we identify. Both are costly themselves, in terms of lower productivity, but they reduce the cost of producing greater variety. The results are robust to controlling for the endogeneity of the adoption decisions using activity‐specific instruments, as proposed by Athey and Stern (2003). Copyright © 2007 John Wiley & Sons, Ltd.

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