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

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  • 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
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    References listed on IDEAS

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    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.
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    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).

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    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

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