Publication Date

2010-05-11

Availability

Open access

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PHD)

Department

Industrial Engineering (Engineering)

Date of Defense

2009-05-29

First Committee Member

Murat Erkoc - Committee Chair

Second Committee Member

Dingxi Qiu - Committee Member

Third Committee Member

Shihab S. Asfour - Committee Member

Fourth Committee Member

Haresh Gurnani - Outside Committee Member

Abstract

In this dissertation we investigate joint optimal capacity investment, pricing and production decisions for a multinational manufacturer who faces exchange rate uncertainties. We consider a manufacturer that sells its product in both domestic and foreign markets over a multiperiod season. Because of long-lead times, the capacity investment must be committed before the selling season begins. The exchange rate between the two countries fluctuates across period and the demand in both markets is price dependent. In the first part, the model considers three scenarios: (1) early commitment to price and quantity with central sourcing, (2) postponement of prices and quantities with central sourcing, and (3) local sourcing. We derive the optimal capacity and the optimal prices for each scenario, and investigate the impact of the exchange rate parameters and the length of the selling season on optimal capacity investment, production allocation, and pricing decisions. We observe that while the price and production decisions in the domestic market are independent of the exchange rate under early commitment and local sourcing scenarios, the exchange rate between two countries directly impacts these decisions under the postponement setting. We identify thresholds and gain insights on investment costs, market potentials, exchange rate drifts, and selling season length for the choice of entering a foreign market under all scenarios. In the second part of this dissertation, we consider a duopoly competition in the foreign country. We consider a single period setting and we model the exchange rate as a random variable. We assume two scenarios: (1) Exogenous Model, where the price of the foreign manufacturer is set a priori, and (2) Endogenous Model, where the prices are set simultaneously based on a Nash Game outcome. In the Exogenous Model, we study the impact of exchange rate and foreign manufacturer's price on optimal capacity and prices. In the Endogenous Model, we investigate the impact of competition and exchange rate on optimal capacities and optimal prices. We show how competition can impact the decision of the home manufacturer to enter the foreign market.

Keywords

Capacity; Exchange Rate; Competition

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