In this paper, we formulate a firm’s investment in a production facility with maximum capacity and outsourcing strategy. Existing literature of capacity choice results in an explosive capacity and long delay in investment. Actually, there are slight possibility that a firm installs a facility with an explosive capacity, instead, a firm can outsource production when the demand exceeds its capaci...

The Coase conjecture (1972) is the proposition that a durable goods monopolist, who sells over time and can quickly reduce prices as sales are made, will price at marginal cost. Subsequent work has shown that in some plausible cases that conjecture does not hold. We show that the Coase conjecture does not hold in any plausible case. In particular, we examine that conjecture in a model where the...

Papers published in this report series are preliminary versions of journal articles and not for quotations. Abstract This paper extends the real options literature by discussing an investment problem, where a firm has to determine optimal investment timing and optimal capacity choice at the same time under conditions of irreversible investment expenditures and uncertainty in future demand. Afte...

We analyze endogenous capacity formation in a large frictional market with perfectly divisible goods. Each seller posts a price and decides on a capacity. The buyers base their decision on which seller to visit on both characteristics. In this setting we determine the conditions for the existence and uniqueness of a symmetric equilibrium. When capacity is unobservable there exists a continuum o...

....................................................................................................................................v EXECUTIVE SUMMARY ........................................................................................................... vi CHAPTER 1 BACKGROUND ...................................................................................................1 CHAPTER 2 CH...

....................................................................................................................................v EXECUTIVE SUMMARY ........................................................................................................... vi CHAPTER 1 BACKGROUND ...................................................................................................1 CHAPTER 2 CH...