Advanced Search
MyIDEAS: Login to save this paper or follow this series

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

Contents:

Author Info

  • Kashefi, Mohammad Ali

Abstract

This paper examines the effect of salvage market on strategic technology choice and capacity investment decision of two firms that compete on the amount of output they produce under demand uncertainty. A game theoretic model applies such that in the first stage firms choose their production technology between two alternatives: modular production process (flexible technology) or unified production process (inflexible technology). Then at the second stage they decide on the amount of capacity investment: flexible firm makes decision about general and specific components’ capacity and inflexible firm just about unified component (final product). One stage forward both enter the primary market in which demand is uncertain and play a duopoly Cournot game on the amount of quantity they manufacture and finally at the last stage, flexible firm will be able to sell its unsold general components in the secondary market (salvage market) with a deterministic price. Solving optimization problems of the model results in intractable equations which lead us to employ numerical studies considering a specific probability distribution to observe equilibrium behavior of competing firms. Broad range of parameters with respect to established relationships among them have been examined in order to cover all the possible economically reasonable scenarios. Findings are expressed explicitly in the form of observations where we demonstrate 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 when 1. Both firms choose 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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/37836/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37836.

as in new window
Length:
Date of creation: 20 Mar 2012
Date of revision: 03 Apr 2012
Handle: RePEc:pra:mprapa:37836

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Salvage Market; Modular and Unified Production Process; Product Postponement; Demand Uncertainty; Investment Decision; Operation Management;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Roller, Lars-Hendrik & Tombak, Mihkel M, 1990. "Strategic Choice of Flexible Production Technologies and Welfare Implications," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 38(4), pages 417-31, June.
  2. Stephen C. Graves & Brian T. Tomlin, 2003. "Process Flexibility in Supply Chains," Management Science, INFORMS, INFORMS, vol. 49(7), pages 907-919, July.
  3. Ravi Anupindi & Li Jiang, 2008. "Capacity Investment Under Postponement Strategies, Market Competition, and Demand Uncertainty," Management Science, INFORMS, INFORMS, vol. 54(11), pages 1876-1890, November.
  4. Lars-Hendrik Röller & Mihkel M. Tombak, 1993. "Competition and Investment in Flexible Technologies," Management Science, INFORMS, INFORMS, vol. 39(1), pages 107-114, January.
  5. Reynolds, Stanley S. & Wilson, Bart J., 2000. "Bertrand-Edgeworth Competition, Demand Uncertainty, and Asymmetric Outcomes," Journal of Economic Theory, Elsevier, Elsevier, vol. 92(1), pages 122-141, May.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:37836. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.