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| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Production in advance versus production to order: the role of downstream spatial clustering and product differentiation |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Journal of Urban Economics |
| Publisher | Elsevier |
| Geographical Reach | international |
| ISSN | 0094-1190 |
| Volume | 70 |
| Number | 1 |
| Page Range | 32 - 46 |
| Date | 2011 |
| Abstract Text | In every production process, suppliers have to decide whether an item should be produced and stored as inventory before an explicit purchase order is received (production in advance), or whether it should be produced only after such an order is received (production to order). We study the determinants of this firm-level choice. We present a simple conceptual framework to derive predictions that we subsequently test in the empirical analysis. We argue that an increment in buyers’ spatial concentration benefits production in advance more in homogenous industries than in differentiated ones, while the benefits for production to order are larger as product differentiation increases. Consequently, the propensity to adopt one of the two production modes, following an increase in the number of local downstream buyers, changes according to the degree of product differentiation of the goods. Relying on a large data set of Italian manufacturing firms, we find empirical support to our ideas. |
| Digital Object Identifier | 10.1016/j.jue.2011.01.003 |
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| Keywords | Urban studies, economics and econometrics, production to order, production in advance, downstream spatial clustering, product differentiation, organized exchange markets, supply chain management |