Vanishing hands? On the link between product and organization architecture

Abstract

The present article investigates whether modular product architectures deliver better and more differentiated products, given their production in disintegrated and integrated settings. A theoretic model benchmarks the performance of disintegration and integration for different degrees of product modularity by measuring both product quality and differentiation. In line with conventional wisdom, (nearly) modular products befit disintegration insofar as disintegration increases quality. However, disintegration only leads to greater product differentiation than integration if there is substantial entry and exit. These findings--albeit developed with stylised models of disintegration and integration--provide a possible explanation for empirical results showing a decrease in product variety when modular products were produced by independent manufacturers (disintegration). Moreover, the model results predict that industries with limited entry and exit as well as strong winner-take-all dynamics tend to incur a loss in variety if modular products are produced in a disintegrated setting. Copyright 2010 The Author 2010. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.