Capacity sharing between competing manufacturers: A collective good or a detrimental effect?

Capacity sharing has become a prevalent solution for addressing the supply-demand mismatch by optimizing capacity allocation among participating manufacturers. However, effective coordination and cooperation are required among involved parties, particularly if capacity sharing occurs between competing manufacturers. This paper investigates capacity sharing between competing manufacturers and examines the optimal sharing service fee policy, taking external market, internal operational, and relationship-specific factors into consideration. Our study incorporates product substitution rate, information symmetry (or asymmetry), and interfirm power relationship to go beyond the immediate direct cost-benefit analysis of capacity sharing and evaluates the trade-off between capacity sharing associated benefits and costs. Our analysis results illustrate how the market and relationship-specific factors interact with operational factors such as production cost difference and capacity constraints to influence firms' capacity sharing decisions. The broad set of decision outcomes derived from our comprehensive analyses is beneficial for companies of all sizes and shapes to make informed strategic and operational decisions according to their own circumstances.