Capacity competition under random yield

We consider a decentralized setting where the suppliers choose their production capacity levels, and the retailer makes ordering decisions based on the suppliers' capacities, where all firms are risk-neutral and any given supplier, who leads to random yield in production, is defined to be unreliable. We show that the suppliers install capacity levels such that the expected shortage for each supplier is the same and the retailer orders along each supplier's capacity level. (C) 2012 Elsevier B.V. All rights reserved.