# American Institute of Mathematical Sciences

October  2013, 9(4): 799-825. doi: 10.3934/jimo.2013.9.799

## Optimal capacity reservation policy on innovative product

 1 School of Management, Huazhong University of Science and Technology, Wuhan, China, China 2 School of Management, Xi'an Jiaotong University, Xi'an, China

Received  February 2012 Revised  March 2013 Published  August 2013

We examine the problem of optimal capacity reservation policy on innovative product in a setting of one supplier and one retailer. The parameters of capacity reservation policy are two dimensional: reservation price and excess capacity that the supplier will have in additional to the reservation amount. The above problem is analyzed using a two-stage Stackelberg game. In the first stage, the supplier announces the capacity reservation policy. The retailer forecasts the future demand and then determines the reservation amount. After receiving the reservation amount, the supplier expands the capacity. In the second stage, the uncertainty in demand is resolved and the retailer places a firm order. The supplier salvages the excess capacity and the associated payments are made.
In the paper, with exogenous reservation price or exogenous excess capacity level, we study the optimal expansion policy and then investigate the impacts of reservation price or excess capacity level on the optimal strategies. Finally, we characterize Nash Equilibrium and derive the optimal capacity reservation policy, in which the supplier will adopt exact capacity expansion policy.
Citation: Jianbin Li, Ruina Yang, Niu Yu. Optimal capacity reservation policy on innovative product. Journal of Industrial & Management Optimization, 2013, 9 (4) : 799-825. doi: 10.3934/jimo.2013.9.799
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