Less is more: A strategic analysis of 3D printing with limited capacity

Abstract

Conventional wisdom suggests that capacity expansion could increase (or at least not decrease) firms' profits. This paper shows that this does not always hold for 3D printing products with limited capacity. We develop a game model in which two firms have an opportunity to produce 3D printing products by investing in 3D printing technology. Generally, the capacity of 3D printing products is limited relative to traditional products, and firms usually spend a fixed cost to prepare production. We first analyse the case of a monopoly, which serves as a benchmark. Then, we examine a competing case in which we characterize the equilibrium 3D printing strategy for two firms. In the case of a monopoly, it is intuitive that the firm can benefit from 3D printing if the fixed cost is not too high. However, in the competing case, it is interesting that the two firms may be involved in a prisoner's dilemma. That is, the optimal strategy for each firm is to give up 3D printing, but the equilibrium strategy is to embrace 3D printing. Furthermore, we find that the firm gains more profit (not strictly) in the monopoly case as capacity of 3D printing increases. In the competing case, surprisingly, we find that one firm's profit may decrease as the capacity increases. Finally, we verify the robustness of the model and find that the main findings are valid even when several assumptions are relaxed.