Pricing and Lead Time Competition in the Presence of Process Variability

22 Pages Posted: 10 Apr 2013 Last revised: 7 Aug 2014

See all articles by Rahul Patil

Rahul Patil

Indian Institute of Technology (IIT), Bombay - Shailesh J. Mehta School of Management (SJM)

Tapan Dey

Indian Institute of Technology (IIT), Bombay

Janat Shah

Indian Institute of Management Udaipur

Date Written: April 7, 2013

Abstract

Managing variability in both arrival and production processes has been a central challenge for both manufacturing and service industries. Models have been proposed to study the negative impact of higher process variability on operational performance. In the make to order context, the variability can influence the lead time decision and hence both the tardiness costs and the chances of winning customer orders. In this paper, we investigate the strategic role of process variability. Specifically, we consider two make to order firms that have different variability characteristics and study how they affect the firm’s strategic decisions namely lead time and price and subsequently profits. We first show that the game has a unique Nash equilibrium by using super modularity and contraction-mapping methods. We then propose an algorithm that efficiently computes the Nash equilibrium. Numerical experiments demonstrate how the strategic influence of variability depends upon business and operational characteristics.

Keywords: Process Variability, Lead Time Quotation, Manufacturing Strategy, Queuing Theory, Game Theory.

Suggested Citation

Patil, Rahul and Dey, Tapan and Shah, Janat, Pricing and Lead Time Competition in the Presence of Process Variability (April 7, 2013). Indian Institute of Management Udaipur Research Paper Series No. 2012-2171274, Available at SSRN: https://ssrn.com/abstract=2246278 or http://dx.doi.org/10.2139/ssrn.2246278

Rahul Patil (Contact Author)

Indian Institute of Technology (IIT), Bombay - Shailesh J. Mehta School of Management (SJM) ( email )

Powai
Mumbai, Maharashtra 400076
India

Tapan Dey

Indian Institute of Technology (IIT), Bombay ( email )

Powai
IIT Bombay, Powai
Mumbai, Maharashtra 400076
India

Janat Shah

Indian Institute of Management Udaipur ( email )

Mohanlal Sukhadia University Campus
Udaipur, Rajasthan 313001
India

HOME PAGE: http://www.iimu.ac.in

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