Effects of retail market structure and production conditions on firm’s location selections of fragmented production process

Abstract

Manufacturing firms fragment their production processes into some blocs and shift each bloc to the place that provides economic conditions suitable to its property in order to reduce total production costs. This paper investigates the firm’s location selections of a divided bloc from among potential location sites. First, assuming a manufacturing firm which uses the integrated processes, it is elucidated that the price, production amounts of goods, and the manufacturing firm’s profits are affected by the competition style established in the retail market. Secondly, the paper shows that when the manufacturer divides the production processes into two blocs and chooses the location site of a sliced bloc from potential location sites, the competition style in the retail market and the production condition of the potential sites crucially influence the firm’s location selections of the bloc. The manufacturing firms do not always locate production process at the place where wage rates are low, but they locate the process at the place that offers economic conditions suitable to its property.