Abstract Raw material down conversion is common in practice, in which high-end raw materials may be transformed into low-end materials to make low-end products at a down-conversion cost. Motivated by this phenomenon, this paper investigates the profit-maximizing manufacturer’s joint input quantity, down-conversion policy and pricing decisions in a co-production system wherein two vertical differentiated products are simultaneous manufactured. We employ two stylized modeling approaches (i.e., deterministic yield model and random yield model) to formulate the manufacturer’s operation behavior. We find that the adoption of down-conversion policy is threshold controlled by the unit down-conversion cost in each yield scenario, and only when the unit down-conversion cost is sufficiently low will the manufacturer adopt this policy. In detail, the implementation of this policy tends to exaggerate the total demand base (demand enhancement effect) and increase the price differentiation (relieved cannibalization effect). To benefit from this policy sufficiently, the manufacturer is always aggressive to input more quantity regardless of the yield pattern (i.e., deterministic or random). Specifically, when the manufacturer adopts down-conversion policy (under the assumption that the random yield follows a uniform distribution), the optimal input quantity in the random yield scenario is higher than that in the deterministic yield scenario when the unit down-conversion cost is low and vice versa. In addition, the manufacturer has higher possibility to implement down-conversion policy in the random yield scenario.

中文翻译：

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垂直差异化联合生产系统下转换策略的价值

摘要 原料降频在实践中很常见，高端原料可能以降频成本转化为低端材料制成低端产品。受这种现象的启发，本文研究了同时制造两种垂直差异化产品的联合生产系统中利润最大化制造商的联合投入数量、下转换政策和定价决策。我们采用两种程式化的建模方法（即确定性良率模型和随机良率模型）来制定制造商的操作行为。我们发现下变频策略的采用是由每个良率情景下的单位下变频成本控制的阈值，只有当单位下变频成本足够低时，制造商才会采用该策略。详细，这一政策的实施往往会夸大总需求基数（需求增强效应），加大价格差异（缓解蚕食效应）。为了充分受益于该政策，制造商总是积极地输入更多数量，而不管产量模式（即，确定性或随机性）。具体而言，当制造商采用下转换策略时（假设随机良率服从均匀分布），当单位下转换成本为 时，随机良率情景下的最优投入量高于确定性良率情景下的最优投入量。低，反之亦然。此外，厂商在随机良率场景下执行降频政策的可能性更大。