Aggregate production planning for process industries under oligopolistic competition

Aggregate production planning for process industries under oligopolistic competition

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Article ID: iaor20125946
Volume: 223
Issue: 3
Start Page Number: 680
End Page Number: 689
Publication Date: Dec 2012
Journal: European Journal of Operational Research
Authors: ,
Keywords: planning, combinatorial optimization
Abstract:

We consider a competitive version of the traditional aggregate production planning model with capacity constraints. In the general case, multiple products are produced by a few competing producers (oligopoly) with limited capacities. Production quantities, prices and consequently profits depend on production and allocation decisions of each producer. In addition, there is competition for the raw material whose supplies are limited, and where prices reflect these limitations. Such situations have recently occurred in several process industry settings including petro‐refining, petrochemicals, basic chemicals, cement, fertilizers, pharmaceuticals, rubber, paper, food processing and metals. We use a successive ‘Bertrand–Cournot’ framework to address this problem and to determine optimal production quantities, prices and profits at the producers and at the raw material supplier. Our analysis allows a new way to understand and evaluate the marginal value of additional capacity when there is competition for the market and raw materials.

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