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Coproduct Technologies: Product Line Design and Process Innovation

Author

Listed:
  • Ying-Ju Chen

    (Department of Industrial Engineering and Operations Research, University of California, Berkeley, Berkeley, California 94720)

  • Brian Tomlin

    (Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755)

  • Yimin Wang

    (W. P. Carey School of Business, Arizona State University, Tempe, Arizona 85287)

Abstract

The simultaneous production of different outputs (coproducts) is observed in the chemical, material, mineral, and semiconductor industries among others. Often, as with microprocessors, the outputs differ in quality in the vertical sense and firms classify the output into different grades (products). We analyze product line design and production for a firm operating a vertical coproduct technology. We examine how the product line and profit are influenced by the production cost and output distribution of the technology. We prove that production cost influences product line design in a fundamentally different manner for coproduct technologies than for uniproduct technologies where the firm can produce products independently. For example, with coproducts, the size and length of the product line can both increase in the production cost. Contrary to the oft-held view that variability is bad, we prove the firm benefits from a more variable output distribution if the production or classification cost is low enough.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1738 . This paper was accepted by Serguei Netessine, operations management.

Suggested Citation

  • Ying-Ju Chen & Brian Tomlin & Yimin Wang, 2013. "Coproduct Technologies: Product Line Design and Process Innovation," Management Science, INFORMS, vol. 59(12), pages 2772-2789, December.
    • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:12:p:2772-2789
    DOI: 10.1287/mnsc.2013.1738
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