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Keywords:

  • FMS (flexible manufacturing system);
  • production substitution;
  • spatial price discrimination;
  • L13;
  • R32

ABSTRACT

We investigate the flexible manufacturing system (FMS) by using the spatial price discrimination framework of Pal. The degree of flexibility when producing variants can be increased by increasing the investment or production cost and is endogenously determined. Our result is that private incentives for increasing flexibility are excessive from a social welfare perspective.