Capacity reservation contracts

Another possible contract is one in which the retailer is charged per unit to reserve capacity and then w to use this reserved capacity. The manufacturer builds this reserved capacity and the retailer then uses capacity 

The manufacturer profit can then be written as (w — c)E min demand, K)) + p — c K. The corresponding retailer profit can be written as 

Notice also that for any take-or-pay contract there is an equivalent capacity reservation contract. Setting p = T and w = w — T generates exactly the same manufacturer and retailer profits as the payback contract. 

Consider the example described earlier. Set the cost to reserve capacity as p = 0.35 (equal to Tset in section 5.8.1) and set the cost to execute capacity as JZ = 1.95 — 0.35 = 1.60. The corresponding calculations for the manufacturer s expected profits are shown in Table 5.7 and the retailer s expected profits are shown in Table 5.8. 

The associated manufacturer profit obtained by adding the values in the last column in Table 5.7 is 11.817. 

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How does the problem change from the discussions in earlier sections where the manufacturer absorbs all risk Notice that all of the contracts we discussed earlier can now be considered for this case. As before, double marginalization will prevent the supply chain from being coordinated with a wholesale price only contract. A payback contract now becomes a returns contract, where the manufacturer takes back leftover product from the retailer with an associated payment for returns. The payback contract can coordinate the supply chain in this case. The capacity reservation contract also coordinates the supply chain in this case due to its equivalence to the returns contract, as discussed earlier. 

Erkoc, M., Wu, D. (2005). Managing high-tech capacity expansion via reservation contracts. Production and Operations Management, 14, 232-251. 

In a volatile market, contracts must reflect the uncertainties in the marketplace. This can be included in a contract in multiple ways. For example, the buyer can incorporate a delivery window instead of a fixed delivery time permit a small variation in the quantity delivered permit the wholesale price to vary within some botmds and buy insurance or financial hedges to insulate against market volatility. Examples of creative risk sharing contracts would be, capacity reservation, build-operate-transfer, forming supplier consortium, and forecast revision. 

The standard allocation was based on data describing the situation of each installation until 2002 (2003 in case of power plants). The allowances from the new entrants reserve were to be granted for installations that increase their capacity after the start of ETS in 2005. During the data collection and consultation process a group of installations reported that after 2002 they either undertook investments leading to a permanent increase of production capacity or took actions leading to a much higher utilisation of production capacity (e.g. new contracts for centralised heat delivery). It was decided to treat such installations on an individual basis ... 

One California study suggests that vehicle owners could contribute to spinning reserves. These are contracts for generating capacity that is synchronized with the power line and when required must come up to its full output within 10 minutes. Spinning reserves contribute to grid stability especially during peak periods. 

The structure of the system consists of lymph nodes and channels. The lymph vessels usually traverse at least two nodes. Because not all of these are in use at any given time, there is a tremendous reserve capacity. Flow along these channels is unidirectional, controlled by a valvular system. Sections between the valves contract in sequential reaction to distension, further promoting one-way flow. Some of the larger vessels are also selective in the amount and size of the material they contain. 

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