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Mix, Time and Volume Flexibility: Valuation and Corporate Diversification

Author

Listed:
  • J. Chod
  • N. Rudi
  • J.A. Van Mieghem

Abstract

This article examines the joint impact of three types of operational flexibility in a theoretical model of a two-product firm that makes capacity, production and pricing decisions at three points in time with an underlying continuous-time information evolution. Mix flexibility is measured by the cost of switching production between the two products. Volume flexibility is measured by the fraction of production cost that is variable at the time when the production decision is made. Finally, time flexibility is measured by the relative timing of the production decision. We show that mix and volume flexibilities are substitutes in creating firm value but both are complementary to time flexibility. We discuss the implications of these results for the optimal investment in different aspects of flexibility. We also relate these results to corporate strategy and show how different types of flexibility impact the benefits of corporate diversification.

Suggested Citation

  • J. Chod & N. Rudi & J.A. Van Mieghem, 2012. "Mix, Time and Volume Flexibility: Valuation and Corporate Diversification," Review of Business and Economic Literature, Intersentia, vol. 57(3), pages 262-283, September.
    • Handle: RePEc:sen:rebelj:v:57:i:3:y:2012:p:262-283
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    Cited by:

    1. Wei, Liqun & Zhang, Jianxiong, 2021. "Strategic substitutes or complements? The relationship between capacity sharing and postponement flexibility," European Journal of Operational Research, Elsevier, vol. 294(1), pages 138-148.
    2. He, Wen, 2019. "Impact of capacity flexibility on the use of booking limits," European Journal of Operational Research, Elsevier, vol. 274(1), pages 199-213.
    3. Lingxiu Dong & Panos Kouvelis & Xiaole Wu, 2014. "The Value of Operational Flexibility in the Presence of Input and Output Price Uncertainties with Oil Refining Applications," Management Science, INFORMS, vol. 60(12), pages 2908-2926, December.
    4. Allam Yousuf & Hossam Haddad & Miklos Pakurar & Serhii Kozlovskyi & Anastasiia Mohylova & Oksana Shlapak & Felfoldi Janos, 2019. "The Effect of Operational Flexibility on Performance: A Field Study on Small and Medium-sized Industrial Companies in Jordan," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 15(1), pages 47-60.

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