Effects Of Capacity Constraints Research Articles

The effect of capacity constraints on the slope of the Phillips curve

Abstract How do capacity constraints affect the slope of the Phillips curve? In particular, do changes in output affect prices by more when firms face more strongly diminishing returns? Intuitively, one may conjecture that the answer is yes. With more strongly diminishing returns, marginal costs increase more when production increases, also raising prices by more. But this intuition is incomplete in models with sticky prices à la Calvo. In the standard New Keynesian model with Calvo pricing frictions, more strongly diminishing returns actually flatten the Phillips curve. The reason is the reluctance of firms who alter their prices to let their prices get too far out of line with the prices set by firms that do not adjust. We explain how the Phillips curve might be amended to avoid this implausible feature, for example, by using Rotemberg pricing or introducing wage stickiness.

Withdrawn: The effect of capacity constraint on pricing decision and coordination contract in recycling channels

This article has been withdrawn at the request of the authors, who did not approve the publication in a supplementary issue. The Publisher apologizes for the inconvenience this is causing.

Effectiveness of nervousness reduction policies when capacity is constrained

A number of studies have examined a variety of solutions for overcoming master production schedule nervousness which is a major cause of cost increase and material flow disruption throughout the supply chain. The study reported in this paper provides a comprehensive review of the literature and provides insights on the effect of capacity constraints on the effectiveness of policies for dampening schedule nervousness. The insights on the impact of capacity constraints are then confirmed via a simulation study investigating the effectiveness of three nervousness reduction policies. The relative effectiveness of the policies (freezing a portion of the schedule, using safety stock at the end item level, and a combination policy of freezing and safety stock) are examined under a variety of conditions characterised by variations in the level of demand uncertainty faced by the system and product structure complexity.

Capacity Constraints and Horizontal Merger Effects

This article examines how capacity constraints affect horizontal mergers. Binding capacity constraints for merging firms may mitigate merger price effects, but capacity constraints for nonmerging firms may either amplify or mitigate such effects. The presence of capacity constraints for both the merging and nonmerging firms in a market further complicates the analysis of merger price effects. Capacity constraints may also confound the relationship between market concentration and merger price effects. In addition, capacity constraints affect market definition analysis and analytical tools such as merger simulation and upward pricing pressure indexes. Analyzing the effects of capacity constraints on mergers continues to be a challenge for merger reviews.

Quality competition and reputation of restaurants: the effects of capacity constraints

Capacity constraints have major effects on restaurant competition. This article captures the impact of capacity constraints on quality and quantity competition of restaurant industry by employing a two-stage asymmetric capacity constraints model. There are several findings from this study. First, results of this study indicate that reputation difference increases total outputs and quality in equilibrium. Second, capacity constraints decrease the consumer surplus (CS) as well as social welfare (SW), but restaurants benefit from capacity constraints sometimes. Third, capacity reduces both the quality and quantity of the competitor. Furthermore, restaurants raise their prices if consumers are quality-sensitive or lower the quality if consumers are price-sensitive under capacity constraints. Fourth, this study compares the total quality, CS, and SW under four cases: no restaurant faces constraints, small restaurant faces constraints, big restaurant faces constraints, and both small and big restaurants face constraints. The total quality investment, CS, and SW are highest if a small restaurant faces capacity constraints while the larger one does not.

Optimal Pricing and Rationing Decisions for Short Life Cycle Products with Time-Sensitive Customers

We consider a firm that sells a product with a short life cycle to time-sensitive customers. The customers’ product valuations decrease over time and they are grouped into different classes according to their delay sensitivities, the marginal decrease of their product valuation over time. The product is sold at two points of sale (POS’s): pre-sale and regular sale. We study the firm's sales strategy which involves pricing and rationing decisions. The rationing decision involves the firm deciding which customers to satisfy at pre-sale and rationing the other customers to regular sale. We formulate the firm's problem for both capacitated and uncapacitated firms in order to understand the effect of capacity constraints on the firm’s optimal decisions. We show that for both types of firms the set of rationing constraints is equivalent to a simpler set of constraints that is only related to the total sales in each period. Under optimality, we find that the uncapacitated firm either rations all the customer classes or none of them, and the capacitated firm does not carry inventory from pre-sale to regular sale. When the firm sells to homogeneous customers, we fully characterize the firm's optimal decisions: regardless of the capacity constraints, the firm can obtain optimal profits without rationing any of its customers. Surprisingly, the optimal product entry timing for the capacitated firm can actually increase even when customers’ delay sensitivity increases. When the firm sells to two customer classes, rationing can be optimal for both capacitated and uncapacitated firms. Further, for a capacitated firm it is optimal to either ration both customer classes or none, and rationing can be optimal even when the prices decrease from pre-sale to regular sale. Finally, we perform a numerical study in which we examine how optimal sales strategy changes with parameters and identify the scenarios in which different sales strategies are optimal.

Effects of capacity constraints on mixed duopoly

This paper highlights the mixed duopoly substitutable product with an upstream input subject to capacity constraints. The effects of capacity constraints on the mixed economy are captured. Firstly, the degree of public ownership improves the firm size difference, the price difference, the price dispersion and consumer surplus, while it reduces the price and the second firm’s profits. Secondly, the efficiency difference reduces the firm size difference, the price difference and the price dispersion. Finally, under scarce capacity, the relationship between the total capacity and, the firm size difference, the price difference and the price dispersion, depends on the efficiency of the two firms.

A Game Theoretical Model for Location of Terror Response Facilities under Capacitated Resources

This paper is concerned with the effect of capacity constraints on the locations of terror response facilities. We assume that the state has limited resources, and multiple facilities may be involved in the response until the demand is satisfied consequently. We formulate a leader-follower game model between the state and the terrorist and prove the existence and uniqueness of the Nash equilibrium. An integer linear programming is proposed to obtain the equilibrium results when the facility number is fixed. The problem is demonstrated by a case study of the 19 districts of Shanghai, China.

Duopoly competitions with capacity constrained input

This paper focuses on the duopoly substitutability product with an upstream input subjected to capacity constraints. The effects of capacity constraints are captured. Combining competition effect with constraint effect, some interesting conclusions are reached. First, the relationship between capacity constraints and firm size is addressed. We argue that the capacity constraints reduce market size difference and price difference under Cournot. Second, under the Stackelberg case, the existence of solution is proved, and Stackelberg competitions enlarge firm-size difference and price difference if the more efficient firm plays the leading position. When the weaker firm plays the leading position, the conclusions depend on the total capacity. Finally, under the Stackelberg case, when the stronger firm plays the leading position, the firm-size difference and price difference decrease with total input under capacity constraints, which is contrary to the conclusions under Cournot competitions.

Inter-temporal inventory competition and the effects of capacity constraints

This paper addresses an intertemporal inventory competition between a supplier (a provider, manufacturer) and a retailer engaged in a supply chain. The paper's focus is on the effect of capacity constraints on both parties when demands are seasonal. The paper provides a comparative study of two solution approaches, one is based on supply chain competition and the other is based on system wide optimization. Our results demonstrate that with dynamic inventory competition, the retailer reduces inventory costs by reducing the response period to higher demands while increasing the supply requests compared to the system-wide optimal approach. As a result, the supplier's inventory costs increase. An example illustrating these particular facets of the problem and its application is presented and discussed in light of the supplier and the retailer coordinating policies.

SPATIAL COMPETITION, PRICING, AND MARKET POWER IN TRANSPORTATION: A DOMINANT FIRM MODEL

Transport firms compete over space. We develop a dominant firm model of transport services wherein one firm (the railroad) has market power, but competes in space with a competitive alternative (truck-barge). When constrained, the dominant firm prices to beat the competition, which impedes efficiency when demand has some elas- ticity. We extend the basic model in a number of directions that include the relationship between monopoly prices and the generalized concavity of the shipper demand functions, the effects of multiple terminal markets, the role of joint production (fronthaul-backhaul markets), and the effects of capacity constraints.

Incorporating manufacturing lead times in joint production-marketing models: A review and some future directions

In many industries the pricing of a product over time can be used to manage demand for the product. Lead time, or promised delivery time is often a significant factor in price negotiations. However, the production planning literature has largely treated pricing decisions as exogeneous while focusing on the allocation of production capacity between products over time. On the other hand, the marketing literature has generally ignored the effects of capacity constraints and focused on the effects of pricing.

How to develop a business case for quality

To describe the steps in developing a business case for quality-enhancing interventions (QEIs) in health care. The development of a business case for QEIs in health care involves 11 steps. These steps include (1) describing the intervention, (2) determining perspective, (3) identifying the effects of the intervention on quality, (4) designing the study, (5) identifying and measuring cash flows, (6) considering the effects of capacity constraints, (7) selecting a measure of return on investment, (8) determining the time horizon for the analysis, (9) determining the discount rate, (10) adjusting costs and savings for inflation, and (11) determining organizational readiness for business case development. A checklist offers guidance on assessing readiness for the business case. The absence of a 'business case' for quality is frequently cited as the reason health care organizations do not implement QEIs, despite decades of careful research demonstrating their effectiveness. Our continuing commitment to advancing the discipline of business case analysis is based on a belief that delineating the cost and economic implications of investments in QEIs is a critical threshold issue to widespread adoption of evidence-based quality improvements. We believe it is appropriate and timely to consider how best to standardize approaches and move the field of business case analysis forward.

Evaluating the effects of capacity constraints and demand patterns on supply chain replenishment strategies

This research considers inventory replenishment in a stochastic, multi-echelon supply chain involving both production and distribution functions. Simulation is used to compare distribution/material requirements planning (DRP/MRP), re-order point (ROP) and Kanban (KBN) replenishment strategies. Additional experimental factors include the demand pattern and the existence of manufacturing capacity constraints. Trade-off curves between inventory and delivery performance are generated. Statistical techniques, including analysis of variance (ANOVA), are then used to compare the areas under the trade-off curves and determine the relative dominance among the replenishment strategies. The methodology is used to identify both main and interaction effects. With seasonal demand, DRP/MRP performance is found to be best, followed by ROP and KBN, respectively. Without seasonal demand, the relative performance ranking depends on the presence of capacity constraints. Without capacity constraints, ROP performs best, followed by DRP/MRP and KBN. With capacity constraints, the ranking is reversed. This difference in behaviour can be explained using queuing analysis.

Capacity constraint and seasonal productivity variations at plant level

The paper examines seasonal productivity variations by using monthly plant-level physical output and capacity data. The regression results confirm that seasonal output elasticity is substantially larger than non-seasonal elasticity not only at the industry level, but also at the plant level. The productivity becomes low in the demand-peak season particularly at plants where capacity is highly utilized, consistent with the capacity constraint interpretation. The effect of capacity constraint on productivity fluctuations, however, is modest compared with that of seasonal demand variations.

Effects of Capacity Constraints and Concentration on the Pricing Behaviour in Oligopolistic Industries with Demand Fluctuations

It has been found that prices move procyclically in some industries and countercyclically in others. Empirical research has documented that prices in an industry are likely to move countercyclically when concentration is high and procyclically when concentration is low. I explain these findings by introducing capacity constraints found in the model of Rotemberg and Saloner. JEL Classification Number: L13.

Capital Structure in Repeated Oligopolies

This article analyzes the effect of a firm's capital structure on its product market strategy in the context of a model of repeated oligopoly. I show that there exists an upper bound on the firm's debt level in the absence of bankruptcy costs. This bound depends on the number of firms in the industry, the discount rate, the elasticity of demand, and other related factors that affect product market equilibrium in oligopolies. I also show that warrants may decrease equilibrium output in oligopolies and that convertible debt and warrants may be used to raise the upper bound on the debt level in specific cases. I show that the effect of capacity constraints on optimal capital structure is nonmonotonic.