Finance Papers

Document Type

Journal Article

Date of this Version

2015

Publication Source

Manufacturing & Service Operations Management

Volume

17

Issue

4

Start Page

428

Last Page

444

DOI

10.1287/msom.2015.0534

Abstract

We use a detailed data set from the U.S. auto industry spanning from 2002 to 2009 and a variety of econometric methods to characterize the relationship between the availability of production mix flexibility and firms’ use of responsive pricing. We find that production mix flexibility is associated with reductions in observed manufacturer discounts, resulting from the increased ability to match supply and demand. Under the observed market conditions, mix flexibility accounts for substantial average savings by reducing price discounting by approximately 10% of the average industry discount. We test three supplementary hypotheses and find that the reduction in discounts for vehicles manufactured at flexible plants is (1) higher for higher demand uncertainty, (2) higher for vehicles coproduced with vehicles that belong to a different segment, and (3) lower in situations with higher local competition.

Copyright/Permission Statement

https://doi.org/10.1287/msom.2015.0534

Keywords

empirical operations management, flexibility, pricing, automotive industry

Embargo Date

11-15-2015

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Date Posted: 27 November 2017

This document has been peer reviewed.