Economic implications of 3D printing: Market structure models in light of additive manufacturing revisitedby Christian Weller, Robin Kleer, Frank T. Piller

International Journal of Production Economics

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Economic Implications of 3D printing: Market structure Models in light of additive manufacturing Revisited

Christian Weller, Robin Kleer, Frank T. Piller

PII: S0925-5273(15)00054-7

DOI: http://dx.doi.org/10.1016/j.ijpe.2015.02.020

Reference: PROECO6012

To appear in: Int. J. Production Economics

Received date: 11 February 2014

Accepted date: 24 February 2015

Cite this article as: Christian Weller, Robin Kleer, Frank T. Piller, Economic

Implications of 3D printing: Market structure Models in light of additive manufacturing Revisited, Int. J. Production Economics, http://dx.doi.org/10.1016/j. ijpe.2015.02.020

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Economic Implications of 3D Printing:

Market Structure Models in Light of Additive Manufacturing Revisited

Christian Weller; Robin Kleer*; Frank T. Piller

TIME Research Area, Technology and Innovation Management Group, School of Business and Economics, RWTH Aachen University weller@time.rwth-aachen.de; kleer@time.rwth-aachen.de; piller@time.rwth-aachen.de * Corresponding author. Tel.: +49 241 80 99176; fax: +49 241 8092367.

Abstract

Additive manufacturing (AM), colloquially known as 3D printing, is currently being promoted as the spark of a new industrial revolution. The technology allows one to make customized products without incurring any cost penalties in manufacturing as neither tools nor molds are required.

Moreover, AM enables the production of complex and integrated functional designs in a one-step process, thereby also potentially reducing the need for assembly work. In this article, we discuss the impact of AM technology at both firm and industry level. Our intention is to discern how market structures will be affected from an operations management perspective. Based on an analysis of established economic models, we first identify the economic and technological characteristics of AM and distill four key principles relevant to manufacturers at firm level. We then critically assess the effects of AM at industry level by analyzing the validity of earlier assumptions in the models when these four principles apply. In so doing, we derive a set of seven propositions which provide impetus for future research. In particular, we propose that in a monopoly, the adoption of AM allows a firm to increase profits by capturing consumer surplus when flexibly producing customized products. Meanwhile in competitive markets, competition is spurred as AM may lower barriers to market entry and offers the ability to serve multiple markets at once. This should ultimately result in lower prices for consumers.

Keywords: 3D Printing, Additive Manufacturing, Market Structure, Flexible Manufacturing,

Economic Modeling

JEL classification: L11; O14 2

Economic Implications of 3D Printing:

Market Structure Models in Light of Additive Manufacturing Revisited

Abstract

Additive manufacturing (AM), colloquially known as 3D printing, is currently being promoted as the spark of a new industrial revolution. The technology allows one to make customized products without incurring any cost penalties in manufacturing as neither tools nor molds are required.

Moreover, AM enables the production of complex and integrated functional designs in a one-step process, thereby also potentially reducing the need for assembly work. In this article, we discuss the impact of AM technology at both firm and industry level. Our intention is to discern how market structures will be affected from an operations management perspective. Based on an analysis of established economic models, we first identify the economic and technological characteristics of AM and distill four key principles relevant to manufacturers at firm level. We then critically assess the effects of AM at industry level by analyzing the validity of earlier assumptions in the models when these four principles apply. In so doing, we derive a set of seven propositions which provide impetus for future research. In particular, we propose that in a monopoly, the adoption of AM allows a firm to increase profits by capturing consumer surplus when flexibly producing customized products. Meanwhile in competitive markets, competition is spurred as AM may lower barriers to market entry and offers the ability to serve multiple markets at once. This should ultimately result in lower prices for consumers.

Keywords: 3D Printing, Additive Manufacturing, Market Structure, Flexible Manufacturing,

Economic Modeling

JEL classification: L11; O14 3

Economic Implications of 3D Printing:

Market Structure Models in Light of Additive Manufacturing Revisited 1 Introduction

Research has shown that technological innovation affects firms and market structure (Mills and

Schumann, 1985; Vickers, 1986; Geroski and Pomroy, 1990; Khanna, 1995). In particular, the adoption of flexible manufacturing systems (FMS) has had significant implications for manufacturers and market structure (e.g., Sethi and Sethi, 1990; Womack et al., 1991). FMS can flexibly produce a variety of different outcomes using the same (manufacturing) resources (Gerwin, 1993).

More recently, research has highlighted the potential of additive manufacturing (AM) technology to spark a new industrial revolution by extending the features of conventional FMS technology (The Economist, 2011, 2012; Berman, 2012; Mellor et al. 2014). AM refers to “the process of joining materials to make objects from 3D model data, usually layer upon layer” (ASTM

International, 2013). Colloquially, AM is often referred to as "3D printing" (Lipson and Kurman, 2013). The main benefit of AM technology is that it enables the flexible production of customized products without cost penalties in manufacturing. It does so by using direct digital manufacturing processes that directly transform 3D data into physical parts, without any need for tools or molds. Additionally, the layer manufacturing principle can also produce functionally integrated parts in a single production step, hence reducing the need for assembly activities. Thus,