Setting single-period optimal capacity levels and prices for substitutableproducts

In this paper, we consider how a company that has the flexibility to produc e two substitutable products would determine optimal capacity levels and pr ices for these products in a single-period problem. We first consider the c ase where the firm is a price taker but can determine optimal capacity leve ls for both products. We then consider the case where the Arm can set the p rice for one product and the optimal capacity level for the other. Finally, we consider the case where capacity is fixed for both products, but the fi rm can set prices. For each case, we examine the sensitivity of optimal pri ces and capacities to the problem parameters. Finally, we consider the case where each product is managed by a product manager trying to maximize indi vidual product profits rather than overall firm profits and analyze how opt imal price and capacity decisions are affected.