The objective of this research is to develop models which consider the possibility of future innovations while taking acquisition and replacement decisions. In particular, the research focuses on a capacity expansion and replacement model wherein a sequence of technological breakthroughs are anticipated but their magnitude and timing are uncertain. A firm, operating in such an environment, must decide how much capacity of the current best available technology to acquire to meet the future demand growth. It must also determine whether to replace any of the older vintages partially or completely, with the focus on obsolescence rather than deterioration as the motive for replacement. Such decisions are of the essence in electronics and other industries characterized by rapid technological change. This research also considers the interaction between product life cycles and manufacturing flexibility in a rapidly changing market. This work is motivated by the economic analysis of investment decisions in flexible assembly lines for automobile assembly. The advent of future generations of products lead to obsolescence of dedicate transfer lines. Flexible lines, on the other hand, can process successive generations of product. The high investment required in flexible assembly line is weighed against the reduced obsolescence of such lines.
