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2007

Technology

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Strategic Technology Choice And Capacity Investment Under Demand Uncertainty, Manu Goyal, Serguie Netessine Feb 2007

Strategic Technology Choice And Capacity Investment Under Demand Uncertainty, Manu Goyal, Serguie Netessine

Operations, Information and Decisions Papers

This paper studies the impact of competition on a firm’s choice of technology (product-flexible or product-dedicated) and capacity investment decisions. Specifically, we model two firms competing with each other in two markets characterized by price-dependent and uncertain demand. The firms make three decisions in the following sequence: choice of technology (technology game), capacity investment (capacity game), and production quantities (production game). The technology and capacity games occur while the demand curve is still uncertain, and the production game is postponed until after the demand curve is revealed.

We develop best-response functions for each firm in the technology game and ...