This paper proposes a capacity reservation mechanism for a single-supplier and multi-manufacturer supply chain. The manufacturers first determine the production capacity they should reserve from the supplier, and then realize their reservations and place corresponding supplementary orders within a realization time window. The supplier builds its regular production capacity according to the reservations that have been received, and emergency production capacity for orders that exceed its regular capacity. Towards this end, we develop an analytical model to quantify the manufacturers' optimal capacity reservation quantities and realization times, as well as the supplier's optimal regular capacity. Given regular production capacity competition, a Cellular Automata (CA) simulation model is developed to resolve the analytical intractability of reservation realization time by modeling the manufacturers in an N-person game and identifying the convergence condition. Experiment results indicate that the proposed capacity reservation mechanism outperforms the traditional wholesale price contract in a decentralized supply chain.