Capacity Expansion and Replacement in Growing Markets with Uncertain Technological Breakthroughs
The accelerated pace of technological change has led to rapid obsolescence of productive capacity in electronics and other industries. Managers must consider the impact of future technologies while making acquisition and replacement decisions in such environments. We consider a problem where a sequence of technological breakthroughs are anticipated but their magnitude and timing are uncertain. A firm, operating in such an environment, must decide how much capacity of the current technology to acquire to meet future demand growth. It must also determine whether to upgrade any of the older vintages. We formulate this problem and present some structural results. Using these results, we then develop a highly efficient regeneration point-based dynamic programming algorithm. The effectiveness of the proposed algorithm is illustrated through a computational study. The sensitivity of the first period decision to various parameters is also explored.
Volume (Year): 44 (1998)
Issue (Month): 1 (January)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
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.:
- Methe, David T., 1992. "The influence of technology and demand factors on firm size and industrial structure in the DRAM market -- 1973-1988," Research Policy, Elsevier, vol. 21(1), pages 13-25, February.
- Karlson, Stephen H, 1986. "Adoption of Competing Inventions by United States Steel Producers," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 415-22, August.
- Suresh K. Nair, 1995. "Modeling Strategic Investment Decisions Under Sequential Technological Change," Management Science, INFORMS, vol. 41(2), pages 282-297, February.
- Lieberman, Marvin B, 1987. "Market Growth, Economies of Scale, and Plant Size in the Chemical Processing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 175-91, December.
- Antonelli, Cristiano, 1989. "The role of technological expectations in a mixed model of international diffusion of process innovations: The case of open-end spinning rotors," Research Policy, Elsevier, vol. 18(5), pages 273-288, October.
- Nair, Suresh K. & Hopp, Wallace J., 1992. "A model for equipment replacement due to technological obsolescence," European Journal of Operational Research, Elsevier, vol. 63(2), pages 207-221, December.
- John F. Muth, 1986. "Search Theory and the Manufacturing Progress Function," Management Science, INFORMS, vol. 32(8), pages 948-962, August.
- Cainarca, Gian Carlo & Colombo, Massimo G. & Mariotti, Sergio, 1989. "An evolutionary pattern of innovation diffusion. The case of flexible automation," Research Policy, Elsevier, vol. 18(2), pages 59-86, April.
- Klincewicz, John G. & Luss, Hanan, 1985. "Optimal timing decisions for the introduction of new technologies," European Journal of Operational Research, Elsevier, vol. 20(2), pages 211-220, May.
- Balcer, Yves & Lippman, Steven A., 1984. "Technological expectations and adoption of improved technology," Journal of Economic Theory, Elsevier, vol. 34(2), pages 292-318, December.
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:44:y:1998:i:1:p:12-30. 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: (Mirko Janc)
If references are entirely missing, you can add them using this form.