Coproduct technologies: Product line design and process innovation

Ying Ju Chen, Brian Tomlin, Yimin Wang

Research output: Contribution to journalArticle

33 Scopus citations

Abstract

The simultaneous production of different outputs (coproducts) is observed in the chemical, material, mineral, and semiconductor industries among others. Often, as with microprocessors, the outputs differ in quality in the vertical sense and firms classify the output into different grades (products). We analyze product line design and production for a firm operating a vertical coproduct technology. We examine how the product line and profit are influenced by the production cost and output distribution of the technology. We prove that production cost influences product line design in a fundamentally different manner for coproduct technologies than for uniproduct technologies where the firm can produce products independently. For example, with coproducts, the size and length of the product line can both increase in the production cost. Contrary to the oft-held view that variability is bad, we prove the firm benefits from a more variable output distribution if the production or classification cost is low enough.

Original languageEnglish (US)
Pages (from-to)2772-2789
Number of pages18
JournalManagement Science
Volume59
Issue number12
DOIs
StatePublished - Dec 1 2013

Keywords

  • Pricing
  • Process technology
  • Quality segmentation

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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