Strategic analysis for a technological service industry: A differential game model

This paper describes the application of a differential game model in which technological as well as economic strategies are present. Inventory is not considered, so the products of each firm may be thought of as services. The solution concept is the memoryless closed-loop Nash equilibrium, which is computed by numerical approximation. Effects of changes in technology purchase prices, salvage values at the end of the planning horizon and initial production capacities are studied on realistic data. Managerial policies of demand-capacity balance are examined, and the effects of tight controls are observed. Analyses to show the impact of cost-reduction differentials of new technologies are presented. The insights obtained by the use of such a model can be quite significant, and sizable advantages may be gained through their application.