Article ID: | iaor20084213 |
Country: | Netherlands |
Volume: | 176 |
Issue: | 3 |
Start Page Number: | 1659 |
End Page Number: | 1677 |
Publication Date: | Feb 2007 |
Journal: | European Journal of Operational Research |
Authors: | Wu S. David, Jin Mingzbou |
Keywords: | vehicle routing & scheduling, game theory, supply & supply chains |
Capacity reservation provides a risk-sharing mechanism that encourages a manufacturer to expand its capacity more. We propose a deductible reservation (DR) contract where customers reserve future capacity with a fee that is deductible from the purchasing price. The manufacturer's ex ante announcement of the ‘excess’ capacity that she will have in addition to the reservation amount is a unique feature of the DR contract. An individually rational DR contract that provides channel coordination always exists. Since there is a unique Nash equilibrium for the reservation game among multiple customers, the main results of the one-customer case can be extended to the