IDEAS home Printed from https://ideas.repec.org/a/eut/journl/v18y2013i1p25.html
   My bibliography  Save this article

The Effect of Salvage Market on Strategic Technology Choice and Capacity Investment Decision of Firm under Demand Uncertainty

Author

Listed:
  • Mohammad Ali Kashefi

    (Ph.D. Student, Bielefeld Graduate School of Economics and Management (BiGSEM), Universitätsstrasse 25, D-33615, Bielefeld, Germany)

Abstract

This paper examines the effect of salvage market on strategic technology choice (flexible vs. inflexible) and capacity investment (general, specific and unified components) decision of firms. A four-stage game theoretic model applies to capture strategic decisions of two competitors. In solving optimization problems of the model, we reach intractable equations that enforce us to employ numerical studies. Findings show that with symmetric parameterization there is a unique symmetric Nash equilibrium in which both firms choose inflexible technology while applying asymmetric parameters has the potential to form two types of equilibrium: 1. Both firms chooses inflexible technology or 2. Only one firm chooses flexible technology. Moreover it is shown that there is a specific unified cost threshold that could shift the equilibrium of the game. Finally we discuss on the case that there is no equilibrium and mention some managerial implications of the model.

Suggested Citation

  • Mohammad Ali Kashefi, 2013. "The Effect of Salvage Market on Strategic Technology Choice and Capacity Investment Decision of Firm under Demand Uncertainty," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 18(1), pages 25-67, winter.
    • Handle: RePEc:eut:journl:v:18:y:2013:i:1:p:25
    as

    Download full text from publisher

    File URL: ftp://80.66.179.253/eut/journl/20131-2.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fine, Charles H. & Pappu, Suguna., 1990. "Flexible manufacturing technology and product-market competition," Working papers 3135-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Reynolds, Stanley S. & Wilson, Bart J., 2000. "Bertrand-Edgeworth Competition, Demand Uncertainty, and Asymmetric Outcomes," Journal of Economic Theory, Elsevier, vol. 92(1), pages 122-141, May.
    3. Ravi Anupindi & Li Jiang, 2008. "Capacity Investment Under Postponement Strategies, Market Competition, and Demand Uncertainty," Management Science, INFORMS, vol. 54(11), pages 1876-1890, November.
    4. Lars-Hendrik Röller & Mihkel M. Tombak, 1993. "Competition and Investment in Flexible Technologies," Management Science, INFORMS, vol. 39(1), pages 107-114, January.
    5. Gérard P. Cachon & A. Gürhan Kök, 2007. "Implementation of the Newsvendor Model with Clearance Pricing: How to (and How Not to) Estimate a Salvage Value," Manufacturing & Service Operations Management, INFORMS, vol. 9(3), pages 276-290, October.
    6. Manu Goyal & Serguei Netessine, 2007. "Strategic Technology Choice and Capacity Investment Under Demand Uncertainty," Management Science, INFORMS, vol. 53(2), pages 192-207, February.
    7. Krishnan S. Anand & Karan Girotra, 2007. "The Strategic Perils of Delayed Differentiation," Management Science, INFORMS, vol. 53(5), pages 697-712, May.
    8. Yossi Aviv & Amit Pazgal, 2008. "Optimal Pricing of Seasonal Products in the Presence of Forward-Looking Consumers," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 339-359, December.
    9. Jan A. Van Mieghem & Maqbool Dada, 1999. "Price Versus Production Postponement: Capacity and Competition," Management Science, INFORMS, vol. 45(12), pages 1639-1649, December.
    10. Roller, Lars-Hendrik & Tombak, Mihkel M, 1990. "Strategic Choice of Flexible Production Technologies and Welfare Implications," Journal of Industrial Economics, Wiley Blackwell, vol. 38(4), pages 417-431, June.
    11. Stephen C. Graves & Brian T. Tomlin, 2003. "Process Flexibility in Supply Chains," Management Science, INFORMS, vol. 49(7), pages 907-919, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liu, Congzheng & Letchford, Adam N. & Svetunkov, Ivan, 2022. "Newsvendor problems: An integrated method for estimation and optimisation," European Journal of Operational Research, Elsevier, vol. 300(2), pages 590-601.
    2. Abdel-Karim, Benjamin M. & Benlian, Alexander & Hinz, Oliver, 2021. "The Predictive Value of Data from Virtual Investment Communities," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 124589, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Manu Goyal & Serguei Netessine, 2011. "Volume Flexibility, Product Flexibility, or Both: The Role of Demand Correlation and Product Substitution," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 180-193, March.
    2. Yanmin Jiang & Rui-Na Fan, 2022. "Capacity Investment and Process Efficiency at Flexible Firms," Mathematics, MDPI, vol. 10(10), pages 1-17, May.
    3. Yang, Liu & Wang, Yonggui & Ma, Jun & Ng, Chi To & Cheng, T.C.E., 2014. "Technology investment under flexible capacity strategy with demand uncertainty," International Journal of Production Economics, Elsevier, vol. 154(C), pages 190-197.
    4. Manu Goyal & Serguei Netessine, 2007. "Strategic Technology Choice and Capacity Investment Under Demand Uncertainty," Management Science, INFORMS, vol. 53(2), pages 192-207, February.
    5. Yang, Liu & Ng, C.T., 2014. "Flexible capacity strategy with multiple market periods under demand uncertainty and investment constraint," European Journal of Operational Research, Elsevier, vol. 236(2), pages 511-521.
    6. Liu Yang & Chi To Ng & Yaodong Ni, 2017. "Flexible capacity strategy in an asymmetric oligopoly market with competition and demand uncertainty," Naval Research Logistics (NRL), John Wiley & Sons, vol. 64(2), pages 117-138, March.
    7. Ram Bala & Sumit Kunnumkal & Milind G. Sohoni, 2016. "Evergreening and operational risk under price competition," Naval Research Logistics (NRL), John Wiley & Sons, vol. 63(1), pages 71-89, February.
    8. Amir Fazli & Amin Sayedi & Jeffrey D. Shulman, 2018. "The Effects of Autoscaling in Cloud Computing," Management Science, INFORMS, vol. 64(11), pages 5149-5163, November.
    9. Boonman, H.J. & Hagspiel, V. & Kort, P.M., 2015. "Dedicated vs product flexible production technology: Strategic capacity investment choice," European Journal of Operational Research, Elsevier, vol. 244(1), pages 141-152.
    10. Yang, L. & Ng, C.T. & Cheng, T.C.E., 2011. "Optimal production strategy under demand fluctuations: Technology versus capacity," European Journal of Operational Research, Elsevier, vol. 214(2), pages 393-402, October.
    11. Ravi Anupindi & Li Jiang, 2008. "Capacity Investment Under Postponement Strategies, Market Competition, and Demand Uncertainty," Management Science, INFORMS, vol. 54(11), pages 1876-1890, November.
    12. Oded Berman & Mohammad M. Fazel-Zarandi & Dmitry Krass, 2019. "Truthful Cheap Talk: Why Operational Flexibility May Lead to Truthful Communication," Management Science, INFORMS, vol. 65(4), pages 1624-1641, April.
    13. Jiajia Cong & Wen Zhou, 2020. "Inflexible Repositioning: Commitment in Competition and Uncertainty," Management Science, INFORMS, vol. 66(9), pages 4207-4225, September.
    14. Yang, Shu-Jung Sunny & Anderson, Edward James, 2014. "Competition through capacity investment under asymmetric existing capacities and costs," European Journal of Operational Research, Elsevier, vol. 237(1), pages 217-230.
    15. Mehmet Gümüş & Philip Kaminsky & Sameer Mathur, 2016. "The impact of product substitution and retail capacity on the timing and depth of price promotions: theory and evidence," International Journal of Production Research, Taylor & Francis Journals, vol. 54(7), pages 2108-2135, April.
    16. Jiri Chod & David Pyke & Nils Rudi, 2010. "The Value of Flexibility in Make-to-Order Systems: The Effect of Demand Correlation," Operations Research, INFORMS, vol. 58(4-part-1), pages 834-848, August.
    17. Hagspiel, Verena & Huisman, Kuno J.M. & Kort, Peter M., 2016. "Volume flexibility and capacity investment under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 178(C), pages 95-108.
    18. Dong, Lingxiu & Kouvelis, Panos & Su, Ping, 2013. "Global facility network design in the presence of competition," European Journal of Operational Research, Elsevier, vol. 228(2), pages 437-446.
    19. Wei, Liqun & Zhang, Jianxiong & Zhu, Guowei, 2021. "Incentive of retailer information sharing on manufacturer volume flexibility choice," Omega, Elsevier, vol. 100(C).
    20. Boyer, Marcel, 2020. "L’économie des organisations : Mythes et réalités," L'Actualité Economique, Société Canadienne de Science Economique, vol. 96(4), pages 471-498, Décembre.

    More about this item

    Keywords

    Salvage Market; Modular and Unified Production Process; Product Postponement; Demand Uncertainty; Investment Decision; Operation Management.;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eut:journl:v:18:y:2013:i:1:p:25. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: [z.rahimalipour] (email available below). General contact details of provider: https://edirc.repec.org/data/fecutir.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.