ReportTitle:Hybrid Strategy with a Second Production Chance under Demand Uncertainty and Competition: Stable vs. Responsive
Reporter(Institution):Liu Yang (University of International Business and Economics)
Time:02:00.pm,11th December, 2015
Location:B-201, Building of Economics & Management, JiulonghuCampus
Abstract:This paper investigates a firm’s hybrid strategic deployment with two chances to make production, before and after demand realization, in a competitive market with demand uncertainty. Correspondingly, there are two types of production modes: stable and responsive. Stable production involves somewhat cost advantage and a long lead time; while responsive production incurs an expensive cost and a short lead time, which implies responsiveness to market changes. Given an organizational scale (the total capacity), we show that the hybrid production strategy enhances a firm’s responsiveness to various demands. The firm benefits from such hybrid production strategy by endogenously determining its production mode: stable, responsive, or both. We then examine the impacts of asymmetric organizational scales of firms on their production strategies in a competitive oligopoly market. We demonstrate that small firms prefer the cost advantage of stable production due to its limited resources, while big firms tend to adopt a hybrid production strategy to enjoy the cost advantage and responsiveness simultaneously. We then explore a firm’s capacity policy when the stable and responsive productions require different capacities. We find that as the market expands, the firm will enlarge its organizational scale and pay more attention to stable capacity investment; when the market becomes more uncertain, the firm tends to invest more in responsive capacity to enhance its ability of hedging against the wild extreme of demand fluctuation.
