The Effect of Salvage Market on Strategic Technology Choice and Capacity Investment Decision of Firm under Demand Uncertainty

This paper examines the effect of salvage market on strategic technology choice (flexible vs. inflexible) and capacity investment (general, specific and unified components) decision of firms. A four-stage game theoretic model applies to capture strategic decisions of two competitors. In solving optimization problems of the model, we reach intractable equations that enforce us to employ numerical studies. Findings show that with symmetric parameterization there is a unique symmetric Nash equilibrium in which both firms choose inflexible technology while applying asymmetric parameters has the potential to form two types of equilibrium: 1. Both firms chooses inflexible technology or 2. Only one firm chooses flexible technology. Moreover it is shown that there is a specific unified cost threshold that could shift the equilibrium of the game. Finally we discuss on the case that there is no equilibrium and mention some managerial implications of the model.