Optimal Capacity Adjustment by a Multiplant Firm
AbstractThe paper studies the effect of scale economies on the optimal capacity adjustment of a mutiplant firm. It is shown that with increasing economies of scale plants are ranked in decreasing order, after which the optimal choice is to scrap the largest one. On the contrary, if there are decreasing economies of scale the optimal policy would be to wait before abandoning intermediate plants. That is, decreasing economies of scale amplify the effect of uncertainty on disinvestment and tend to increase the plant's life.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.28.
Date of creation: Mar 1999
Date of revision:
Exit; Option value; Irreversibility;
Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-13 (All new papers)
- NEP-IND-1999-06-08 (Industrial Organization)
- NEP-MIC-1999-06-08 (Microeconomics)
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- Michele Moretto & Gianpaolo Rossini, 2007. "Partnerships vs. Firms Entry Strategies," "Marco Fanno" Working Papers 0049, Dipartimento di Scienze Economiche "Marco Fanno".
- Michele Moretto & Gianpaolo Rossini, .
"Start-up entry strategies: Employer vs. Nonemployer firms,"
ubs0409, University of Brescia, Department of Economics.
- Michele Moretto & Gianpaolo Rossini, 2005. "Start-up Entry Strategies: Employer vs. Nonemployer firms," Working Papers 2005.13, Fondazione Eni Enrico Mattei.
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