Assaf Zeevi

A Note on the Relationship Among Capacity, Pricing, and Inventory in a Make-to-Stock System

Coauthor(s): Gad Allon.

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.

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