Service-based capacity strategy for manufacturing service duopoly of differentiated prices and lognormal random demand
Journal
International Journal of Production Economics
Journal Volume
121
Journal Issue
1
Pages
162-175
Date Issued
2009
Author(s)
Chung, H.-J.
Abstract
Globalization of production has ushered in vibrant manufacturing service industries whose business is to serve the production needs of product engineering firms. In these engineering-manufacturing chains, risk of capacity supply is an important concern for product firms as manufacturers are normally conservative in capacity expansion, especially when demand uncertainty and investment risk are high. To provide quality manufacturing services, this risk must be taken into consideration in formulating a capacity strategy. This paper presents a competition analysis method based on supply risk for a manufacturing duopoly of differentiated prices and lognormal random demand. A novel service-based demand rationing rule is first proposed. Reaction curves and equilibrium of capacity strategy are next derived. Finally, competition behavior of the duopoly is analyzed. © 2009 Elsevier B.V. All rights reserved.
Type
journal article