Revenue Sharing, Demand Uncertainty, and Vertical Control of Competing Firms

This paper argues that revenue sharing is a valuable instrument in vertically separated industries when there is intrabrand competition among the downstream firms, demand is stochastic or variable, and downstream inventory is chosen before demand is realized. In these environments, the upstream firm would like to simultaneously soften downstream competition and encourage efficient inventory holding. Traditional two-part tariffs cannot achieve both objectives in the presence of downstream competition. Raising the price of the inputs softens price competition but distorts the downstream firms' inventory decisions. We argue that revenue sharing, combined with a low input price, aligns the incentives in the vertical chain. The use of revenue sharing in video rental retailing is discussed. Blockbuster in particular has used revenue sharing in conjunction with heavy marketing of availability to grow significantly in the video rental retail industry. Many other outlets use revenue sharing as well. Some antitrust concerns have been raised by smaller firms suggesting that revenue sharing might be an anticompetitive vertical restraint. Although our model does not address retailer market power, we show that revenue sharing contracts can be used by upstream firms increase inventory holding and consumer welfare.

The Future of Retail Operations

Retailing consists of all the activities associated with the selling of goods to the final consumer. In this article, we review the research on retail operations published in Manufacturing & Service Operations Research (M&SOM) since 1999. We then discuss the current retail landscape and the new research directions it offers, in which M&SOM can play a prominent role

Inventory management of vertically differentiated perishable products with stock-out based substitution

The need for optimal inventory control strategies for perishable items is of the utmost importance to reduce the large share of food products that expire before consumption and to achieve responsible food stocking policies. Our study allows for a multi-item setting with substitution between similar goods, deterministic deterioration, delivery lead times and seasonality. Namely, we model demand by a linear discrete choice model to represent a vertical differentiation between products. The verticality assumption is further applied in a novel way within product categories. Specifically, the same product typology is vertically decomposed according to the age of the single stock-keeping unit in a quality-based manner. We compare two different policies to select the daily size of the orders for each product. On the one hand, we apply one of the most classical approaches in inventory management, relying on the Order-Up-To policy, modified to deal with the seasonality. On the other hand, we operate a state-of-the-art actor-critic technique: Soft Actor-Critic (SAC). Although similar in terms of performance, the two policies show diverse replenishment patterns, handling products differently

Product Variety and Demand Uncertainty

We show that demand uncertainty leads to vertical product differentiation even when consumers are homogeneous. When a firm anticipates that its inventory or capacity may not be fully utilized, product variety can reduce its expected costs of excess capacity. When the firm offers a continuum of product varieties, the highest quality product has the highest profit margins but the lowest percentage margin, while the lowest quality product has the highest percentage margin but the lowest absolute margin. We derive these results in both a monopoly model and a variety of different competitive models. We conclude with a discussion of empirical predictions together with a brief discussion of supporting evidence available from marketing studies.

Beyond Markets and Hierarchies: Toward a New Synthesis of American Business History

We sketch a new synthesis of American business history to replace (and subsume) that put forward by Alfred D. Chandler, Jr., most famously in his book The Visible Hand (1977). We see the broader subject as the history of the institutions of coordination in the economy, with the management of information and the addressing of problems of informational asymmetries representing central problems for firm- and relationship design. Our analysis emphasizes the endogenous adoption of coordination mechanisms in the context of evolving but specific operating conditions and opportunities. This naturally gives rise both to change and to heterogeneity in the population of coordination mechanisms to be observed in use at any moment in time. In discussing the changes in the population of mechanisms over time, we seek to avoid the tendency, exemplified by Chandler's work but characteristic of the field, to see history of adoption in teleological rather than evolutionary perspective. We see a richer set of mechanisms in play than is conventional and a more complex historical process at work, in particular a process in which hierarchical institutions have both risen and, more recently, declined in significance.

E-COMMERCE IN AGRICULTURE: DEVELOPMENT, STRATEGY, AND MARKET IMPLICATIONS

Marketing,

Pricing Dynamics and Screening Mechanisms

Uncertainty and risk aversion play an important role in consumer decision making in many settings. Using novel proprietary data from an airline that includes passenger-level bookings and cancellations, I study the effectiveness of screening by airlines on consumer uncertainty using a menu of refunds. I find that cancellation rates of tickets range from 4.58% to 14.44% across flight segments, associated fees make up 1.54% of the airline’s revenue on these segments, and tickets without refunds are cancelled least often. To study the welfare implications of alternative refund strategies, I develop and estimate a model in which consumers face dynamic prices and make purchase decisions over tickets differentiated by quality and cancellation fees. I find that strategies that provide greater flexibility to consumers reduce profits more than the increase in consumerwelfare.Doctor of Philosoph

Product Lotteries and Loss Aversion

Product lotteries are a sales strategy where companies hide features of differentiated products from consumers until the purchase is complete. I identify loss aversion as an important factor explaining the existence of vertical product lotteries. I consider a profit-maximizing monopolist serving loss-averse consumers with rational expectations about the lottery. I find that the optimal strategy consists of offering a premium product with high and deterministic quality and a lottery with stochastic and lower expected quality. When consumers are reasonably loss averse, I show that the profit increase from adding a quality lottery exceeds 10% compared to the case without a lottery

Tourism supply chain management : a new research agenda

2008-2009 > Academic research: refereed > Publication in refereed journalAccepted ManuscriptPublishe