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Title: Impact of Product Substitution on the Optimal Capacity of the Flexible Resource Under Different Demand Models
Authors: Suwandechochai, Rawee 
Bish, Ebru K. 
Issue Date: 2007
Publisher: University of the Thai Chamber of Commerce
Source: Rawee Suwandechochai, Ebru K. Bish (2007) Impact of Product Substitution on the Optimal Capacity of the Flexible Resource Under Different Demand Models.
Conference: Proceedings of the 2nd International Conference on Operations and Supply Chain Management 
Abstract: This paper studies the relationship between the optimal capacity and the degree of the product substitution under price and production postponement strategy, considering several different additive and multiplicative uncertainty for demand functions which have been used in the economics and operations management literature. We consider a firm that can produce two substitutable products and acts as a price-setter in a monopolistic setting under price and production postponement strategies. The firm needs to make three sets of decisions: capacity investment, production quantities, and prices. While the capacity investment decision is made ex-ante, pricing and production quantities can be postponed until after demand curves are observed.Based on this framework, we characterize the optimal pricing, production, and investment decisions under price and production postponement strategy for each demand model. Our results show that the behavior of optimal capacity for each demand models in substitution parameter depends highly on the demand model used.
Rights: This work is protected by copyright. Reproduction or distribution of the work in any format is prohibited without written permission of the copyright owner.
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