THE STRATEGIC CAPACITY-EXPANSION MODEL FOR A NEWSPRINT FIRM

Capacity-expansion decisions in a capital-intensive industry determine to a large extent the fate of a firm. This is especially true in an o ligopolistic industry facing cyclical commodity markets where all firm s endure the consequences of mistaken decisions, not only their own bu t also those of others. This paper describes a newly developed model f or helping firms with their capacity and production decisions in the n ewsprint industry in North America. The model explicitly considers str ategic interactions between firms in the industry, both in making shor t-term production decisions and in deciding on the expansion of capaci ty. The Nash equilibrium-solution concept is used to identify actions to be taken by the competing firms. The paper presents the results of the validation of the model and provides an example of its use for str ategic experiments.