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Service-based capacity strategy for manufacturing service duopoly of differentiated prices and lognormal random demand

  • Chou, Yon-Chun
  • Chung, Hsien-Jung
Registered author(s):

    Globalization of production has ushered in vibrant manufacturing service industries whose business is to serve the production needs of product engineering firms. In these engineering-manufacturing chains, risk of capacity supply is an important concern for product firms as manufacturers are normally conservative in capacity expansion, especially when demand uncertainty and investment risk are high. To provide quality manufacturing services, this risk must be taken into consideration in formulating a capacity strategy. This paper presents a competition analysis method based on supply risk for a manufacturing duopoly of differentiated prices and lognormal random demand. A novel service-based demand rationing rule is first proposed. Reaction curves and equilibrium of capacity strategy are next derived. Finally, competition behavior of the duopoly is analyzed.

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    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 121 (2009)
    Issue (Month): 1 (September)
    Pages: 162-175

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    Handle: RePEc:eee:proeco:v:121:y:2009:i:1:p:162-175
    Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

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    1. De Borger, Bruno & Van Dender, Kurt, 2005. "Prices, capacities and service quality in a congestible Bertrand duopoly," University of California Transportation Center, Working Papers qt1k51437c, University of California Transportation Center.
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    4. Chou, Yon-Chun & Cheng, C.-T. & Yang, Feng-Cheng & Liang, Yi-Yu, 2007. "Evaluating alternative capacity strategies in semiconductor manufacturing under uncertain demand and price scenarios," International Journal of Production Economics, Elsevier, vol. 105(2), pages 591-606, February.
    5. Crampes, C. & Hollander, A., 1992. "Duopoly and Quality Standards," Papers 92.g, Toulouse - GREMAQ.
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    7. Cattani, Kyle D. & Dahan, Ely & Schmidt, Glen M., 2008. "Tailored capacity: Speculative and reactive fabrication of fashion goods," International Journal of Production Economics, Elsevier, vol. 114(2), pages 416-430, August.
    8. Johnson, Mark & Mena, Carlos, 2008. "Supply chain management for servitised products: A multi-industry case study," International Journal of Production Economics, Elsevier, vol. 114(1), pages 27-39, July.
    9. Carl Davidson & Raymond Deneckere, 1986. "Long-Run Competition in Capacity, Short-Run Competition in Price, and the Cournot Model," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 404-415, Autumn.
    10. Li, Jianli & Liu, Liwen, 2008. "Supply chain coordination with manufacturer's limited reserve capacity: An extended newsboy problem," International Journal of Production Economics, Elsevier, vol. 112(2), pages 860-868, April.
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