Capacity Planning and Pricing Under Uncertainty

We consider a capacity planning and pricing problem of a monopolist facing uncertain demand. The model framework allows for quot;softquot; and quot;hardquot; capacity constraints as well as for different degrees of demand uncertainty at the time of the capacity and the pricing decision. In particular, we assume that the firm may receive additional demand information at different points of time within the planning horizon. The analysis indicates that the solution of the planning problem crucially depend on the availability of demand information at the time of both the capacity and the pricing decision. In particular, we find that historical capacity acquisition costs are relevant for pricing whenever capacity planning and pricing take place under the same set of information about the state of nature. If the firm has more information at the time of the pricing decision than at the time of capacity planning, only marginal costs are relevant for pricing. We also find that different capacity types only affect the capacity decision but not the nature of optimal prices