Local manufacturing and structural shifts in competition: Market dynamics of additive manufacturing

Abstract

Additive manufacturing (AM) allows to build components and finished series products directly from 3D data, without the need for tooling or other setup cost. An often discussed, but hardly investigated opportunity of AM is to establish economical and scalable local production facilities for innovating consumers (who turn into “prosumers”). In this paper, we investigate the effect of such a local production (enabled by AM) on consumer welfare, market structure, and competitive dynamics. Doing so, we provide a new perspective on the fundamental trade-off between the instant availability of (perfectly fitting) products manufactured by and in close proximity to a consumer and the efficiency gains of realizing economies of scale by producing standard products in a central facility. We analyze AM from the perspective of the established theories of user innovation and spatial competition. Building on two game-theoretical (Hotelling) models, we show that there is scope for the improvement of consumer welfare arising from local production by consumer producers. Our analysis allows us to make a number of propositions concerning the effects of AM on market structure when adopted by local users, and to identify the specific conditions of these shifts.