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Author : Francis De Véricourt
Release : 2014
Genre :
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Book Synopsis Financing capacity investment under demand uncertainty by : Francis De Véricourt
Download or read book Financing capacity investment under demand uncertainty written by Francis De Véricourt. This book was released on 2014. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jan A. Mieghen
Release : 1997
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Book Synopsis Capacity Investment Under Demand Uncertainty by : Jan A. Mieghen
Download or read book Capacity Investment Under Demand Uncertainty written by Jan A. Mieghen. This book was released on 1997. Available in PDF, EPUB and Kindle. Book excerpt: This article shows that under uncertainty, a firm's capacity investment decision crucially depends on the mode of market approach (price-setting vs. quantity-setting) and competition that follows investment. We model an industry in which firms have to make capacity investment decisions when demand is uncertain. First each firm must decide on its capacity investment level. Then, industry capacity levels are observed and firms engage in quantity or pricecompetition. Finally, demand and revenues are realized. We begin by considering a monopoly and show that the monopoly price given an uncertain demand curve can be higher or lower than the reference price when the demand curve is known at the start. Moreover price and firm value may fall or rise with increasing uncertainty. We compare these results with a setting where a monopolist sets quantityinstead of price. The resulting investment fundamentally differs from the price-setting investment. Moreover, theinvestment strategy under quantity-setting is significantly less sensitive to variability and more profitable than under price-setting. Under quantity competition, these results extend to a duopoly, oligopoly and perfect competition. In addition, entry dettering investments are possible yet more difficult as variability increases and credible only at low investment costs. Under price competition, no pure equilibria exist if there is demand uncertain
Author : Jan A. Van Mieghem
Release : 1998
Genre : Subcontracting
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Book Synopsis Capacity Investment Under Demand Uncertainty by : Jan A. Van Mieghem
Download or read book Capacity Investment Under Demand Uncertainty written by Jan A. Van Mieghem. This book was released on 1998. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Guy Meunier
Release : 2016
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Book Synopsis Capacity Investment Under Demand Uncertainty by : Guy Meunier
Download or read book Capacity Investment Under Demand Uncertainty written by Guy Meunier. This book was released on 2016. Available in PDF, EPUB and Kindle. Book excerpt: Demand uncertainty is thought to influence irreversible capacity decisions. Suppose that local demand can be sourced from domestic (rigid) production or from (flexible) imports. This paper shows that the optimal domestic capacity is either increasing or decreasing with demand uncertainty, depending on the relative level of the costs of domestic production and imports. We test this relationship with data from the U.S. cement industry, in which the difference in marginal cost between domestic production and imports varies across local U.S. markets because cement is costly to transport over land. Industry data for 1999 to 2010 are consistent with the predictions of the model. The introduction of two technologies to the production set--one rigid and one flexible--is crucial to understanding the relationship between capacity choice and uncertainty in this industry because there is no relationship between these two variables in aggregated U.S. data. Our analysis reveals that the relationship is negative in coastal districts, and significantly more positive in landlocked districts.
Author : Francis deVericourt
Release : 2014
Genre :
Kind : eBook
Book Rating : /5 ( reviews)
Book Synopsis Financing Capacity Investment Under Demand Uncertainty by : Francis deVericourt
Download or read book Financing Capacity Investment Under Demand Uncertainty written by Francis deVericourt. This book was released on 2014. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the interplay between the operational and financial facets of capacity investment. We consider the capacity choice problem of a firm with limited liquidity and whose access to external capital markets is hampered by moral hazard. The firm must therefore not only calibrate its capacity investment and the corresponding funding needs, but also optimize its sourcing of funds. Importantly, the set of available sources of funds is derived endogenously and includes standard financial claims (debt, equity, etc.). We find that when higher demand realizations are more indicative of high effort, debt financing is optimal for any given capacity level. In this case, the optimal capacity is never below the efficient capacity level but sometimes strictly above that level. Further, the optimal capacity level increases with the moral hazard problem's severity and decreases with the firm's internal funds. This runs counter to the newsvendor logic and to the common intuition that by raising the cost of external capital and hence the unit capacity cost, financial market frictions should lower the optimal capacity level. We trace the value of increasing capacity beyond the efficient level to a bonus effect and a demand elicitation effect. Both stem from the risk of unmet demand, which is characteristic of capacity decisions under uncertainty.
