A note on the relationship among capacity, pricing, and inventory in a make-to-stock system

Gad Allon*, Assaf Zeevi

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

Abstract

We address the simultaneous determination of pricing, production, and capacity investment decisions by a monopolistic firm in a multi-period setting under demand uncertainty. We analyze the optimal decision with particular emphasis on the relationship between price and capacity. We consider models that allow for either bi-directional price changes or models with markdowns only, and in the latter case we prove that capacity and price are strategic substitutes.

Original languageEnglish (US)
Pages (from-to)143-151
Number of pages9
JournalProduction and Operations Management
Volume20
Issue number1
DOIs
StatePublished - Jan 2011

Keywords

  • capacity investment
  • inventory
  • pricing
  • stochastic demand

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

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