Competing for shelf space

This paper studies competition for shelf space in a multi-supplier retail point. We consider a retailer that seeks to allocate her shelf space to maximize her profit. Because products associated with larger profit margin are granted more shelf space, suppliers can offer the retailer financial incentives to obtain larger space allocations. We analyze the competitive dynamics arising from the scarcity of space, and show existence and uniqueness of equilibrium. We then demonstrate that the inefficiencies from decentralizing decision-making are limited to 6% with wholesale-price contracts, and that full coordination can be achieved with pay-to-stay fee contracts. We finally investigate how competition is distorted under the practice of category management.Game theory; Supply chain competition; Price of Anarchy; Pricing; Supply contracts;

Advertising and Business Cycle Fluctuations

This paper provides new empirical evidence for quarterly U.S. aggregate advertisingexpenditures, showing that advertising has a well defined pattern over the BusinessCycle. To understand this pattern we develop a general equilibrium model wheretargeted advertising increases the marginal utility of the advertised good. Advertisingintensity is endogenously determined by profit maximizing firms. We embed thisassumption into an otherwise standard model of the business cycle withmonopolistic competition. We find that advertising affects the aggregate dynamics ina relevant way, and it exacerbates the welfare costs of fluctuations for the consumer.Finally, we provide estimates of our setup using Bayesian techniques.Advertising, DSGE model, Business Cycle fluctuations, Bayesian

Manufacturer's pricing strategies in cooperative and non-cooperative advertising supply chain under retail competition

This article studies the manufacturer's pricing strategy in a supply chain with a single manufacturer and two competing retailers. The manufacturer, as a Stackelberg leader specifies wholesale prices to two retailers who face advertisement dependent demand. Based on this gaming structure, two mathematical models are developed - the cooperative advertising model where manufacturer shares a fraction of retailers' advertising costs and the non-cooperative advertising model where manufacturer does not share any retailer's advertising expenses. The optimal strategies of the manufacturer and retailers are determined and a numerical example is taken to illustrate the theoretical results derived. We show that cooperative advertising policy is beneficial not only for the participating entities but also for the entire supply chain

Price Leadership in UK Food Retailing: Time Series Representation and Evidence

This paper analyses the price of a common basket of products sold in each of the UK’s four largest retail chains to assess propositions regarding price leadership. Data used in this investigation represent weighted average prices of a large group of branded and non-branded products purchased nationally at weekly intervals over a three and half year period and cover purchases in 37 product categories. The data are analysed using vector autoregressive methods, a convenient framework for a statistical investigation of this sort, owing to the time series properties that the price data exhibit. The paper introduces the concepts of strategic and tactical price leadership. Since these correspond to parameter restrictions in the vector autoregression, the statistical tests have a economically meaningful interpretation. While the empirical findings are preliminary, they indicate that Tesco, the largest of the retail chains, acts as price leader in both the strategic and tactical senses.

Competitive contract design in a retail supply chain under demand uncertainty

This article studies the design of contracts involving a single retailer and multiple competing manufacturers who supply substitutable products. We consider a retail context in which contracts with manufacturers are negotiated relatively infrequently and signed before the demand environment is known, and the retail prices are determined when the demand is known. We develop a Stackelberg model to study the retailer's product selection and pricing decisions and the manufacturers' contract design decisions. We show that it is optimal for each manufacturer to offer a contract with nonlinear prices so that total payments are the total production cost plus a fixed additional cost. In the case of two manufacturers this result allows us to characterize an equilibrium in which the retailer's choice maximizes the supply chain profit, each manufacturer makes a profit equal to its marginal contribution to the supply chain, and the retailer takes the remaining profit. We also find that while increasing demand correlation always benefits the retailer, it benefits the manufacturers only when the production costs are convex. In an extension it is found that our equilibrium continues to hold when the retailer's reservation profit is below a threshold, but the competition dynamics may change when the reservation profit is above the threshold. Finally, we show that the equilibrium results remain true for the case with more than two manufacturers under a submodularity property, which holds in the case of quadratic costs and linear demand

Strategic and Tactical Design of Competing Decentralized Supply Chain Networks with Risk-Averse Participants for Markets with Uncertain Demand

An integrated equilibrium model for tactical decisions in network design is developed. We consider a decentralized supply chain network operating in markets under uncertain demands when there is a rival decentralized chain. The primary assumption is that two chains provide partial substitutable products to the markets, and markets' demands are affected by tactical decisions such as price, service level, and advertising expenditure. Each chain consists of one risk-averse manufacturer and a set of risk-averse retailers. The strategic decisions are frequently taking precedence over tactical ones. Therefore, we first find equilibrium of tactical decisions for each possible scenario of supply chain network. Afterwards, we find optimal distribution network of the new supply chain by the scenario evaluation method. Numerical example, including sensitivity analysis will illustrate how the conservative behaviors of chains' members affect expected demand, profit, and utility of each distribution scenario

Buyer Power and Product Innovation: Empirical Evidence from the German Food Sector.

Substantial increases in retail concentration (particularly in Europe) raise concerns about the welfare implications for consumers. In a formal model, we argue that retailer market power reduces upstream firms incentives to introduce new products. On the basis of a survey of firms in German food manufacturing, the results of a negative binomial regression model supports the proposition of a detrimental effect of retailer market power on product innovations. This effect is mitigated if manufacturing firms also have some market power (countervailing power). Innovations are positively related to firm?s market share in food manufacturing. --Retailer market power,product innovation,food manufacturing

Demand Management in Decentralized Logistics Systems and Supply Chains

We analyze issues arising from demand management in decentralized decision-making environments. We consider logistics systems and supply chains, where companies' operations are handled with independent entities whose decisions affect the performance of the overall system. In the first study, we focus on a logistics system in the sea cargo industry, where demand is booked by independent sales agents, and the agents' capacity limits and sales incentives are determined by a central headquarters. We develop models for the central headquarters to analyze and optimize capacity allocation and sales incentives to improve the performance of the decentralized system. We use network flow problems to incorporate agent behavior in our models, and we link these individual problems through an overall optimization problem that determines the capacity limits. We prove a worst-case bound on the decentralized system performance and show that the choice of sales incentive impacts the performance. In the second study, we focus on supply chains in the automotive industry, where decentralization occurs as a result of the non-direct sales channels of the auto manufacturers. Auto manufacturers can affect their demand through sales promotions. We use a game theoretical model to examine the impact of retailer incentive and customer rebate promotions on the manufacturer's pricing and the retailer's ordering/sales decisions. We consider several models with different demand characteristics and information asymmetry between the manufacturer and a price discriminating retailer. We characterize the subgame-perfect Nash equilibrium decisions and determine which promotion would benefit the manufacturer under which market conditions. We find that the retailer incentives are preferred when demand is known. On the other hand, when demand is highly uncertain the manufacturer is better off with customer rebates. We extend this research by analyzing a competitive setting with two manufacturers and two retailers, where the manufacturers' promotions vary between retailer incentives and customer rebates. We find an equilibrium outcome where customer rebates reduce the competitor's profits to zero. We observe in numerical examples that the manufacturers are able to increase their sales and profits with retailer incentives, although this can be at the expense of the retailers' profits under some situations.Ph.D.Committee Chair: Swann, Julie; Committee Member: Ergun, Ozlem; Committee Member: Ferguson, Mark; Committee Member: Griffin, Paul; Committee Member: Keskinocak, Pina