Competition under Dynamic Lot Sizing Costs with Capacity Acquisition

Hongyan Li and Joern Meissner
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Hongyan Li: Aarhus School of Business, Aarhus University, Denmark, http://www.meiss.com/en/team/hongyan-li/

No MRG/0006, Working Papers from Department of Management Science, Lancaster University

Abstract: Lot-sizing and capacity planning are important supply chain decisions, and competition and cooperation affect the performance of these decisions. In this paper, we look into the dynamic lot sizing and resource competition problem of an industry consisting of multiple firms. A capacity competition model combining the complexity of time-varying demand with cost functions and economies os scale arising from dynamic lot-sizing costs is developed. Each firm can replenish inventory at the beginning of each period in a finite planning horizon. Fixed as well as variable production costs incur for each production setup, along with inventory carrying costs. The individual production lots of each firm are limited by a constant capacity restriction, which is purchased up front for the planning horizon. The capacity can be purchased from a spot market, and the capacity acquisition cost fluctuates with the total capacity demand of all the competing firms. We solve the competition model and establish the existence of a capacity equilibrium over the firms and the associated optimal dynamic lot-sizing plan for each firm under mild conditions.

Keywords: computational economics; industrial competition; operations research; game theory; capacity optimization; supply chain management; lot sizing; heuristics; equilibrium (search for similar items in EconPapers)
JEL-codes: C61 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2006-06, Revised 2010-04
New Economics Papers: this item is included in nep-cmp, nep-com, nep-ind and nep-mic
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Published in International Journal of Production Economics Vol 131, Issue 2 (June 2011), pp 535-544.

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Related works:
Journal Article: Competition under capacitated dynamic lot-sizing with capacity acquisition (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:lms:mansci:mrg-0006

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