Equipment replacement behavior under innovative technological advances

In considering cost reductions, it is natural to postpone equipment replacement until innovative equipment is made available, if it will appear in the near future. On the other hand, if new equipment with these characteristics is not made available in the near term, existing equipment is upgraded with similar products. This study discusses equipment replacement where innovative technological advances occur together with gradual technological advances. It aims to clarify theoretically and experimentally the above equipment replacement behavior by using ‘Control Limit Policy’. Next, it gives a practical replacement decison method using control limit policy when the appearance time of innovative equipment is forecast. This study is significant in the sense of being able to show that control limit policy can propose not only a convenient method in actual replacement decisions, but also an effective method to explain the qualitative aspects of equipment replacement behavior.