Dual coproduct technologies: Implications for process development and adoption

Ying Ju Chen, Brian Tomlin, Yimin Wang

Research output: Contribution to journalArticle

5 Scopus citations

Abstract

Many industries operate technologies in which multiple outputs (coproducts) are jointly produced. In some settings (“vertical”) the coproducts di er along a performance dimension and are substitutable. In other settings (“horizontal”) the coproducts di er in their applications and are not substitutable. In both cases, three important attributes of a coproduct technology are its processing cost, overall yield, and coproduct split, i.e., the proportion of each output produced. For both vertical and horizontal settings with deterministic market sizes, we characterize the optimal pricing and production decisions of a monopoly firm with two technologies. We establish the necessary and su cient conditions for dual activation (i.e., using both technologies) to be optimal. Dual activation is driven by di erences in marginal costs across the two technologies. There is an additional motive for dual activation in the horizontal setting: the desire to generate a product mix that better resembles the market mix. Building on the optimal production analysis, we characterize the optimal adoption-and-usage strategy of a firm with one incumbent technology considering a new technology. We establish the conditions for which a new technology will displace the incumbent or be used with the incumbent, and highlight some important adoption and usage di erences between vertical and horizontal settings. Results are extended to the setting with uncertain market size(s).

Original languageEnglish (US)
Pages (from-to)692-712
Number of pages21
JournalManufacturing and Service Operations Management
Volume19
Issue number4
DOIs
StatePublished - Sep 1 2017

Keywords

  • Operations strategy
  • Process design
  • Technology management

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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