Pricing and production flexibility: An empirical analysis of the U.S. automotive industry

Antonio Moreno, Christian Terwiesch

Research output: Contribution to journalArticlepeer-review

19 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)428-444
Number of pages17
JournalManufacturing and Service Operations Management
Volume17
Issue number4
DOIs
StatePublished - Sep 1 2015

Keywords

  • Automotive industry
  • Empirical operations management
  • Flexibility
  • Pricing

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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