IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Uncertainty, Capacity and Flexibility: the Monopoly Case

  • Marcel BOYER
  • Michel MOREAUX

It is generally expected that profit maximisation leads a firm to choose a more flexible plant the more uncertain its demand function is and/or the more variable is the sequence of quantities to produce. In this paper we make explicit the precise conditions under which this intuitive argument is valid. We show that a sufficient condition is that the increase in uncertainty must involve only those states of demand for which the firm is initially active, that is for which it is able to cover quasi-fixed and variable costs. These are common assumptions in most flexibility choice models. But we also show that a reverse relation between the variability in demand and plant flexibility may exist under reasonable cost and demand conditions, even under the most common definition of increased uncertainty in demand and the most acceptable notion of plant flexibility. We give an example of such an inverse relation.

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://www.jstor.org/stable/20075761
Download Restriction: no

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (1989)
Issue (Month): 15-16 ()
Pages: 291-313

as
in new window

Handle: RePEc:adr:anecst:y:1989:i:15-16:p:13
Contact details of provider: Postal: 3, avenue Pierre Larousse, 92245 Malakoff Cedex
Phone: 01.41.17.51.55
Web page: http://annales.ensae.fr/Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

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

When requesting a correction, please mention this item's handle: RePEc:adr:anecst:y:1989:i:15-16:p:13. 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: (Robert Gary-Bobo)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.