Marketing and production capacity strategy for non-differentiated products

Winning and losing at the capacity cycle game

James A. Dearden, Gary L. Lilien, Eunsang Yoon

Research output: Contribution to journalArticle

21 Citations (Scopus)

Abstract

Customer satisfaction and supplier loyalty in markets where products are mainly undifferentiated are heavily affected by assurance of supply. Marketers manage production capacity in such markets to assure supply, but the resulting capacity competition leads to cycles of over-capacity followed by capacity deletions, which lead to under-capacity. We investigate some of the possible causes of this form of industry behavior in two ways. First, we report on an exploratory empirical investigation, motivated by in-depth interviews with industry executives, and develop a set of structural principles. We formalize those principles in a set of statistical models. Next, we review some related theory and identify a number of possible reasons that may combine to cause this phenomenon. We develop some simple, game theoretic models that focus on the issues of strategic interaction with demand uncertainty and different values of capacity change. We use the theory results to illustrate how over- and under-capacity situations arise. We compare our theoretical and empirical results and find an encouraging degree of convergence. We discuss the implications of these findings for individual firm strategies.

Original languageEnglish (US)
Pages (from-to)57-74
Number of pages18
JournalInternational Journal of Research in Marketing
Volume16
Issue number1
StatePublished - Feb 1 1999

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Marketing
Production capacity
Industry
Overcapacity
Suppliers
Demand uncertainty
Game-theoretic models
Customer satisfaction
Simple game
Product market
Empirical results
In-depth interviews
Assurance
Marketers
Strategic interaction
Empirical investigation
Statistical model
Firm strategy
Loyalty

All Science Journal Classification (ASJC) codes

  • Marketing

Cite this

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Marketing and production capacity strategy for non-differentiated products : Winning and losing at the capacity cycle game. / Dearden, James A.; Lilien, Gary L.; Yoon, Eunsang.

In: International Journal of Research in Marketing, Vol. 16, No. 1, 01.02.1999, p. 57-74.

Research output: Contribution to journalArticle

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