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Dynamic Game Results of the Acquisition of New Technology

Author

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  • Cheryl Gaimon

    (Georgia Institute of Technology, Atlanta, Georgia)

Abstract

Open and closed-loop Nash strategies are derived and analyzed for a differential game in which two competing firms choose prices and productive capacity where new technology reduces a firm's unit operating cost. Using an open-loop strategy, a firm makes an irreversible commitment to a future course of action. For example, a contract with a labor union may force a firm to commit to maintaining its entire workforce regardless of its competitor's future realized behavior. In contrast, using a closed-loop strategy, a firm's decisions evolve over time, continuously responding to the competitor's behavior. The dynamic Nash strategies obtained for the closed-loop model exhibit a more restricted acquisition of new technology and a greater reduction of existing capacity relative to the open-loop solutions. In addition, the dynamic Nash price to be charged for output is higher in the closed as opposed to open-loop competitive environment. Numerical solutions are presented to demonstrate that if both firms apply the closed-loop approach, each will earn higher profits than if one or both firms choose an open-loop strategy.

Suggested Citation

  • Cheryl Gaimon, 1989. "Dynamic Game Results of the Acquisition of New Technology," Operations Research, INFORMS, vol. 37(3), pages 410-425, June.
    • Handle: RePEc:inm:oropre:v:37:y:1989:i:3:p:410-425
    DOI: 10.1287/opre.37.3.410
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    Cited by:

    1. Wenjie Tang & Tong Wang & Wenxin Xu, 2022. "Sooner or Later? The Role of Adoption Timing in New Technology Introduction," Production and Operations Management, Production and Operations Management Society, vol. 31(4), pages 1663-1678, April.
    2. Mehmet Ali Soytaş & Damla Durak Uşar, 2017. "Role of Strategic Interactions in Corporate Sustainability Decisions: An Empirical Investigation," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 6(1), pages 17-46, January.
    3. Rahman, Atiqur & Loulou, Richard, 2001. "Technology acquisition with technological progress: effects of expectations, rivalry and uncertainty," European Journal of Operational Research, Elsevier, vol. 129(1), pages 159-185, February.
    4. Huisman, Kuno J. M. & Kort, Peter M., 2003. "Strategic investment in technological innovations," European Journal of Operational Research, Elsevier, vol. 144(1), pages 209-223, January.
    5. Sampath Rajagopalan & Medini R. Singh & Thomas E. Morton, 1998. "Capacity Expansion and Replacement in Growing Markets with Uncertain Technological Breakthroughs," Management Science, INFORMS, vol. 44(1), pages 12-30, January.
    6. Souza, Gilvan C., 2004. "Product introduction decisions in a duopoly," European Journal of Operational Research, Elsevier, vol. 152(3), pages 745-757, February.
    7. Kim, Bowon, 1998. "Optimal development of production technology when autonomous and induced learning are present," International Journal of Production Economics, Elsevier, vol. 55(1), pages 39-52, June.
    8. Sanjiv Erat & Stylianos Kavadias, 2006. "Introduction of New Technologies to Competing Industrial Customers," Management Science, INFORMS, vol. 52(11), pages 1675-1688, November.
    9. 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.
    10. Tombak, Mihkel M., 1995. "Process technologies, learning and brand proliferation," European Journal of Operational Research, Elsevier, vol. 82(1), pages 26-38, April.
    11. Jing, Fei & Lin, Jun & Zhang, Qiao & Qian, Yanjun, 2022. "New technology introduction and product rollover strategies," European Journal of Operational Research, Elsevier, vol. 302(1), pages 324-336.
    12. Talluri, Srinivas & Whiteside, Mary M. & Seipel, Scott J., 2000. "A nonparametric stochastic procedure for FMS evaluation," European Journal of Operational Research, Elsevier, vol. 124(3), pages 529-538, August.
    13. Richard A. Jensen, 2001. "Strategic Intrafirm Innovation Adoption and Diffusion," Southern Economic Journal, John Wiley & Sons, vol. 68(1), pages 120-132, July.
    14. Manu Goyal & Serguei Netessine, 2007. "Strategic Technology Choice and Capacity Investment Under Demand Uncertainty," Management Science, INFORMS, vol. 53(2), pages 192-207, February.
    15. Cheryl Gaimon, 1994. "Subcontracting versus capacity expansion and the impact on pricing of services," Naval Research Logistics (NRL), John Wiley & Sons, vol. 41(7), pages 875-892, December.
    16. Fehmi Tanrısever & S. Sinan Erzurumlu & Nitin Joglekar, 2012. "Production, Process Investment, and the Survival of Debt‐Financed Startup Firms," Production and Operations Management, Production and Operations Management Society, vol. 21(4), pages 637-652, July.
    17. Transchel, Sandra & Minner, Stefan, 2011. "Economic lot-sizing and dynamic quantity competition," International Journal of Production Economics, Elsevier, vol. 133(1), pages 416-422, September.
    18. Taekwon Kim & Lars‐Hendrik Röller & Mihkel M. Tombak, 1994. "On the timing of adoption of multiproduct technologies," Naval Research Logistics (NRL), John Wiley & Sons, vol. 41(3), pages 377-394, April.

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