 The Effect of Salvage Market on Strategic Technology Choice and Capacity Investment Decision of Firm under Demand UncertaintyMPRA Paper from University Library of Munich, Germany Abstract: This paper examines the effect of salvage market on strategic technology choice and capacity investment decision of two firms that compete on the amount of output they produce under demand uncertainty. A game theoretic model applies such that in the first stage firms choose their production technology between two alternatives: modular production process (flexible technology) or unified production process (inflexible technology). Then at the second stage they decide on the amount of capacity investment: flexible firm makes decision about general and specific components’ capacity and inflexible firm just about unified component (final product). One stage forward both enter the primary market in which demand is uncertain and play a duopoly Cournot game on the amount of quantity they manufacture and finally at the last stage, flexible firm will be able to sell its unsold general components in the secondary market (salvage market) with a deterministic price. Solving optimization problems of the model results in intractable equations which lead us to employ numerical studies considering a specific probability distribution to observe equilibrium behavior of competing firms. Broad range of parameters with respect to established relationships among them have been examined in order to cover all the possible economically reasonable scenarios. Findings are expressed explicitly in the form of observations where we demonstrate that with symmetric parameterization there is a unique symmetric Nash equilibrium in which both firms choose inflexible technology while applying asymmetric parameters has the potential to form two types of equilibrium when 1. Both firms choose inflexible technology or 2. Only one firm chooses flexible technology. Moreover it is shown that there is a specific unified cost threshold that could shift the equilibrium of the game. Finally we discuss on the case that there is no equilibrium and mention some managerial implications of the model. Keywords: Salvage Market; Modular and Unified Production Process; Product Postponement; Demand Uncertainty; Investment Decision; Operation Management (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:37836 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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