How do 3D printing suppliers facilitate manufacturers’ product differentiation via component provision? A scope economies perspective

Abstract

Drawing from observed component transactions between 3D Printing (3DP) companies and traditional manufacturers, we build a game model to investigate how an upstream 3DP supplier can foster a downstream manufacturer’s product differentiation by offering differentiated components at a reduced cost with scope economies enabled by 3DP technology. Our model characterises the supplier’s 3DP technology using three parameters: printing variety, the quantity threshold for scope economies (QTSE), and the degree of scope economies. We derive analytical conditions under which distinct equilibrium outcomes: product differentiation with scope economies, neither product differentiation nor scope economies, and scenarios where product differentiation without scope economies emerge. Surprisingly, we discover that advancements in the supplier’s 3DP production technology may not necessarily benefit either the manufacturer or the supplier. Specifically, a reduction in the QTSE required to activate scope economies leads to increased profit for the supplier but decreased profit for the manufacturer. Furthermore, an expansion in the printing variety can enhance one party’s profit at the expense of the other party.