{"title":"Optimizing capacity investment and production planning in the presence of protective tariffs and market competition","authors":"Bin Wei, Nengmin Wang, Zhengwen He, Harris Wu","doi":"10.1016/j.ejor.2025.09.020","DOIUrl":null,"url":null,"abstract":"Stringent tariff policies have forced multinational firms (MNFs) to evaluate the necessity of establishing new production capacities in their target markets to avoid high tariffs. We utilize a three-stage game-theoretic model to examine the capacity investment and production decisions of the MNF facing raw materials and finished goods tariffs, as well as competition from the local firm. Our findings indicate that intensified competition does not necessarily erode profitability; under certain demand scenarios, cost‑advantaged firms may achieve enhanced profits. Moreover, rather than universally deterring capacity investments, competition may stimulate higher capacity levels compared to a monopolistic setting. Furthermore, higher raw material tariffs diminish the investment motivation of the MNF and decrease its optimal capacity, while finished goods tariffs enhance investment willingness only under moderate capacity investment cost conditions. Finally, tariffs tend to depress MNF production and profitability while enhancing the output and profits of the local firm, albeit at the expense of consumer welfare. However, in certain circumstances, an increase in finished goods tariffs can inadvertently boost the expected output of the MNF while harming the profitability of the local firm.","PeriodicalId":55161,"journal":{"name":"European Journal of Operational Research","volume":"7 1","pages":""},"PeriodicalIF":6.0000,"publicationDate":"2025-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"European Journal of Operational Research","FirstCategoryId":"91","ListUrlMain":"https://doi.org/10.1016/j.ejor.2025.09.020","RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"OPERATIONS RESEARCH & MANAGEMENT SCIENCE","Score":null,"Total":0}
引用次数: 0
Abstract
Stringent tariff policies have forced multinational firms (MNFs) to evaluate the necessity of establishing new production capacities in their target markets to avoid high tariffs. We utilize a three-stage game-theoretic model to examine the capacity investment and production decisions of the MNF facing raw materials and finished goods tariffs, as well as competition from the local firm. Our findings indicate that intensified competition does not necessarily erode profitability; under certain demand scenarios, cost‑advantaged firms may achieve enhanced profits. Moreover, rather than universally deterring capacity investments, competition may stimulate higher capacity levels compared to a monopolistic setting. Furthermore, higher raw material tariffs diminish the investment motivation of the MNF and decrease its optimal capacity, while finished goods tariffs enhance investment willingness only under moderate capacity investment cost conditions. Finally, tariffs tend to depress MNF production and profitability while enhancing the output and profits of the local firm, albeit at the expense of consumer welfare. However, in certain circumstances, an increase in finished goods tariffs can inadvertently boost the expected output of the MNF while harming the profitability of the local firm.
期刊介绍:
The European Journal of Operational Research (EJOR) publishes high quality, original papers that contribute to the methodology of operational research (OR) and to the practice of decision making.