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Capacity Investment Timing by Start-ups and Established Firms in New Markets


  • Robert Swinney

    () (Graduate School of Business, Stanford University, Stanford, California 94305)

  • Gérard P. Cachon

    () (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Serguei Netessine

    () (INSEAD, 77305 Fontainebleau, France)


We analyze the competitive capacity investment timing decisions of both established firms and start-ups entering new markets, which have a high degree of demand uncertainty. Firms may invest in capacity early (when uncertainty is high) or late (when uncertainty has been resolved), possibly at different costs. Established firms choose an investment timing and capacity level to maximize expected profits, whereas start-ups make those choices to maximize the probability of survival. When a start-up competes against an established firm, we find that when demand uncertainty is high and costs do not decline too severely over time, the start-up takes a leadership role and invests first in capacity, whereas the established firm follows; by contrast, when two established firms compete in an otherwise identical game, both firms invest late. We conclude that the threat of firm failure significantly impacts the dynamics of competition involving start-ups. This paper was accepted by Yossi Aviv, operations management.

Suggested Citation

  • Robert Swinney & Gérard P. Cachon & Serguei Netessine, 2011. "Capacity Investment Timing by Start-ups and Established Firms in New Markets," Management Science, INFORMS, vol. 57(4), pages 763-777, April.
  • Handle: RePEc:inm:ormnsc:v:57:y:2011:i:4:p:763-777

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    Cited by:

    1. Yang, Shu-Jung Sunny & Anderson, Edward James, 2014. "Competition through capacity investment under asymmetric existing capacities and costs," European Journal of Operational Research, Elsevier, vol. 237(1), pages 217-230.
    2. repec:eee:dyncon:v:82:y:2017:i:c:p:142-164 is not listed on IDEAS
    3. Guofang Nan & Xingtao Li & Zan Zhang & Minqiang Li, 0. "Optimal pricing for new product entry under free strategy," Information Technology and Management, Springer, vol. 0, pages 1-19.
    4. repec:kap:jinten:v:15:y:2017:i:4:d:10.1007_s10843-017-0207-2 is not listed on IDEAS
    5. Hagspiel, Verena & Huisman, Kuno J.M. & Kort, Peter M., 2016. "Volume flexibility and capacity investment under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 178(C), pages 95-108.
    6. repec:spr:annopr:v:240:y:2016:i:2:d:10.1007_s10479-014-1737-9 is not listed on IDEAS
    7. repec:eee:proeco:v:191:y:2017:i:c:p:278-285 is not listed on IDEAS
    8. Li, X. & Zuidwijk, R.A. & de Koster, M.B.M. & Dekker, R., 2016. "Competitive Capacity Investment under Uncertainty," ERIM Report Series Research in Management ERS-2016-005-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    9. Genc, Talat S., 2017. "The impact of lead time on capital investments," Journal of Economic Dynamics and Control, Elsevier, vol. 82(C), pages 142-164.
    10. repec:eee:transe:v:106:y:2017:i:c:p:255-275 is not listed on IDEAS
    11. Huberts, Nick, 2017. "Strategic investment in innovation : Capacity and timing decisions under uncertainty," Other publications TiSEM 6473e1df-9b8d-49ae-99f8-b, Tilburg University, School of Economics and Management.


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