UTCC Scholar :: Browsing JEO: Conference Papers by Author "Bish, Ebru K."

JEO: Conference Papers

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https://hdl.handle.net/20.500.14437/121

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Impact of Product Substitution on the Optimal Capacity of the Flexible Resource Under Different Demand Models
(University of the Thai Chamber of Commerce, 2007)
Suwandechochai, Rawee
;
Bish, Ebru K.
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.
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