Competitive capacity and price decisions for two build-to-order manufacturers facing time-dependent demands

Tiaojun Xiao, Tsan Ming Choi

Research output: Journal article publicationJournal articleAcademic researchpeer-review

10 Citations (Scopus)

Abstract

This paper develops game-theoretic models to investigate the optimal competitive capacityprice decisions for two build-to-order manufacturers when they face the disruption of a random demand surge. Both manufacturers have their fixed capacity and pricing decisions for the low-demand period. When there is a sudden demand increase, they can temporally acquire extra capacity and change their pricing decisions. Our goal is to determine the optimal joint capacity and pricing decisions for both low- and high-demand periods. We show that there exists a unique subgame perfect Nash equilibrium that is affected by the distribution of the disrupted amount of demand, the duration of the demand change, the market scale, the unit production cost, and the subcontracting cost. The recommendations on how and when the manufacturers should strategically increase their profits by adjusting their capacities and prices are provided. We also find that the demand disruption largely influences the motivation of the manufacturers to acquire capacity information when the cost of acquiring capacity information is considered. The effects of capacity and pricing competition are investigated. Insights are generated, and future research directions are outlined.
Original languageEnglish
Article number5356209
Pages (from-to)583-595
Number of pages13
JournalIEEE Transactions on Systems, Man, and Cybernetics Part A:Systems and Humans
Volume40
Issue number3
DOIs
Publication statusPublished - 1 May 2010

Keywords

  • Capacity and pricing decisions
  • Demand disruption
  • Game theory
  • Production optimization
  • Subcontracting

ASJC Scopus subject areas

  • Control and Systems Engineering
  • Software
  • Human-Computer Interaction
  • Computer Science Applications
  • Electrical and Electronic Engineering

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