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Capacity Investment and Pricing Decisions in a Single-Period, Two-Product-Problem

In: Operations Research Proceedings 2007

Author

Listed:
  • Sandra Transchel

    (University of Mannheim)

  • Stefan Minner

    (University of Mannheim)

  • David F. Pyke

    (Tuck School of Business at Dartmouth)

Abstract

We consider a profit-maximizing firm that produces two products with a single capacity. The products are characterized by different demand patterns and the initial capacity is allocated such that the entire demand of one product is satisfied before the other. We develop and analyze a model that determines the optimal initial capacity investment and the selling prices for both products simultaneously. We provide analytical results and develop an algorithm. In a numerical example, we compare this centralized planning approach with decentralized planning where two product managers plan the selling prices and the required production capacity separately but manufacturing produces both products on a common resource. We show that through coordination of pricing and capacity decisions a better capacity utilization can be achieved.

Suggested Citation

  • Sandra Transchel & Stefan Minner & David F. Pyke, 2008. "Capacity Investment and Pricing Decisions in a Single-Period, Two-Product-Problem," Operations Research Proceedings, in: Jörg Kalcsics & Stefan Nickel (ed.), Operations Research Proceedings 2007, pages 389-394, Springer.
    • Handle: RePEc:spr:oprchp:978-3-540-77903-2_60
    DOI: 10.1007/978-3-540-77903-2_60
    as

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