Quick Response under Competition

W e consider a manufacturer serving two competing retailers that sell their products over a single selling season. The retailers place their regular orders before the season starts. In addition to this initial order, quick response (QR) provides a retailer with an additional replenishment opportunity after demand uncertainty is resolved. The manufacturer determines the unit price for QR replenishment. We characterize the retailers' ordering, and the manufacturer's pricing decisions in equilibrium when none, only one, and both of the retailers have QR ability. We study how the profitability of the manufacturer, the retailers, and the channel depend on QR and competition. We find it may be optimal for the manufacturer to offer QR to only one of the ex ante identical retailers when demand variability is sufficiently, but not overly high. The manufacturer may also find it optimal to offer QR to both or none of the retailers, depending on demand variability. Finally, while QR ability is always attractive for a retailer when competition is ignored, we find QR may prove detrimental when its impact on competition is taken into account

Supply chains and antitrust governance

Antitrust regulations are meant to promote fair competition in the market, but balancing administrative and legal costs with enforcement can be difficult when multilayered supply chains are involved. The canonical example of this challenge is the landmark Illinois Brick ruling, which limits antitrust damages to only the direct purchasers of a product; for instance, consumers can file antitrust claims against colluding retailers but not against colluding manufacturers—only retailers can file claims against manufacturers. This controversial ruling was meant to reduce legal costs, but it can clearly lead to missed enforcement opportunities. In this paper, we demonstrate how the Illinois Brick ruling interacts with contracts adopted in the supply chain, and we show that otherwise equivalent supply chain arrangements can have markedly different effects. In particular, we find that wholesale price, minimum order quantity, revenue sharing, and quantity discount contracts lead retailers to take legal action against manufacturers in the event of collusive behavior. However, the wholesale price plus fixed fee contract structure (also known as a two-part tariff or slotting fee contract) facilitates collusion among the manufacturers with retailers compensated by the fixed fee and not filing the antitrust litigation. We further demonstrate that collusion is more likely under high demand uncertainty and high competition at the retail level but is less likely under high competition at the manufacturer level. Our paper helps public enforcers identify market conditions conducive to antitrust violations

Coordinating the Optimal Discount Schedules of Supplier and Carrier

Transportation is important in making supply chain decisions. With the careful consideration of transportation expenses, the performance of each supply chain member, as well as the entire supply chain, could be improved significantly. The purpose of this research is: 1) to explore and identify the various situations that relate to replenishment and transportation activities; and 2) to reveal the strength of the connection between purchase quantity and transportation discounts, and integrate the two discounts to enhance supply-chain coordination. The problem is analyzed and categorized into four representative cases, depending on transportation. To aid the supplier or the carrier to determine the discount that should be offered, in light of the buyer's reaction to that discount, decision models are proposed under three different circumstances. First, assuming a single product, we investigate the quantity discounts from the supplier's perspective, via a noncooperative game-theoretical approach and also a joint decision model. Taking into account the price elasticity of demand, this analysis aids a sole supplier in establishing an all-unit quantity discount policy in light of the buyer's best reaction. The Stackelberg equilibrium and the Pareto-optimal solution set are derived for the noncooperative and joint-decision cases, respectively. Our research indicates that channel efficiency can be improved significantly if the quantity discount decision is made jointly rather than noncooperatively. Moreover, we extend our model in several directions: (a) the product is transported by a private fleet; (b) the buyer may choose to offer her customers a different percentage discount than that she obtained from the supplier; and (c) the case of multiple (heterogeneous) buyers. Numerical examples are employed, here and throughout the thesis, to illustrate the practical applications of the models presented and the sensitivity to model parameters. Secondly, we consider a situation with a family of SKUs for which the supplier will offer a quantity discount, according to the aggregate purchases of the product group. Management of those items is based on the modified periodic policy. From the supplier's point of view, what are the optimal parameters (breakpoint and discount percentage)? For deterministic demand, we discuss the cases in which demand is both constant and price-sensitive. First as a noncooperative Stackelberg game, and then when the two parties make the discount and replenishment decisions jointly, we illustrate the impact of price-sensitivity and joint decision making on the supplier's discount policy. The third approach studies the case in which transportation of the goods by a common carrier (a public, for-hire trucking company) is integrated in the quantity discount decisions. In reality, it is quite difficult for the carrier to determine the proper transportation discount, especially in the case of LTL (less-than-truckload) trucking. This is not only because of the "phantom freight" phenomenon, caused by possible over-declaration of the weight by the shipper, but also due to the fact that the discount relates to both transportation and inventory issues. In this research, we study the problem of coordinating the transportation and quantity discount decisions from the perspectives of the parties who offer the discounts, rather than the ones that take them. By comparison of the noncooperative and cooperative models, we show that cooperation provides better overall results, not only to each party, but also to the entire supply chain. To divide the extra payoffs gained from that cooperation, we further conduct a coalition analysis, based upon the concept of "Shapley Value." A detailed algorithm and numerical examples are provided to illustrate the solution procedure. Finally, the thesis concludes with comprehensive remarks. We summarize the contributions of this thesis, show the overall results obtained here, and present the directions that our research may take in the future

Competitive Supply Chain Strategies in the Retail Sector

In response to increasing competition, quick response (QR) and vertical integration are commonly used strategies in the retail industry to gain competitive edge. While the benefits of these strategies have been well studied in a monopoly setting, their value under competition has received less attention. It is therefore essential to understand the competitive value of these strategies. In the first chapter, we investigate the value of an additional in-season replenishment opportunity provided by QR in a supply chain with a manufacturer serving two competing retailers. We find offering QR to only one of the ex-ante symmetric retailers may be the optimal policy for a manufacturer, rather than offering QR to both of them or refraining from offering it at all. Moreover, we show QR may prove detrimental to a retailer when retail competition is taken into account. In the second chapter, we examine the value of vertical integration for a manufacturer under channel competition. We build a model with two competing supply chains, each with a supplier, a manufacturer and a retailer. The manufacturer considers three strategies: (1) forward integration, (2) backward integration, and (3) no integration. We show backward integration benefits a manufacturer while forward integration can be harmful to it. For manufacturers' competitive choice of integration strategy, we find manufacturers encounter prisoner's dilemma: every manufacturer chooses to vertically integrate, making them and the entire channel worse off than they would be if none of them vertically integrate. Finally, vertical integration can result in a better quality product sold at a lower price. In the third chapter, we examine the impact of having strategic customers on firms' profitability and the performance of the entire channel. Interestingly, we show that having strategic customers benefits a supplier from higher sales. It also benefits a retailer when a product is sufficiently, but not overly, fashionable. The total supply chain profit can be higher with strategic customers. A decentralized channel with strategic customers can perform better than a centralized one with strategic customers or a decentralized one with myopic customers. That is, decentralized decision making and having strategic customers can improve channel performance

AN EMPIRICAL EXAMINATION OF NEW INNOVATIVE PROCESSES IN RETAIL

Retailers constantly innovate to improve their operations to maintain a competitive advantage, which has become even more apparent following the challenges from the COVID-19 pandemic. One challenge with innovating, however, is that limited information is available to evaluate the effectiveness of the operations. Fortunately empirical methodologies of structural estimation and field experimentation can be used to help determine if innovative processes at retail chains are fruitful when implemented. Field experiments provide direct causal evidence on whether the innovations will work while structural estimation allows for examining counterfactual scenarios to evaluate outcomes from such process innovations. In this dissertation, we leverage structural estimation and field experimentation to study three topics on the frontier of innovations in retail operations: a) dynamic pricing of product drops in the presence of resellers, b) localization of inventory for e-commerce retailers, and c) increasing customer recycling through operational incentives. The key results are as follows. In Chapter 2, through structural estimation we show that incorporating resellers into pricing improves retailer profit by 7% on average, and the impacts of the resale market to firm profit are heterogeneous across products based on the initial inventory relative to the initial demand. In Chapter 3, through structural estimation we find that distribution centers closer to the customer (front DCs) allow the e-commerce retailer to capture an average 10.7% benefit to profit by improving average promised delivery time by 28.3%. Front DCs allow to capture sales from high-margin SKUs with high demand where backup fulfillment results in much longer promised delivery time. In Chapter 4, through field experiments we find that the chosen value-based incentives and convenience-based incentives are ineffective at inducing customers to engage in recycling behavior, despite importance of these incentives toward recycling intentions reported in the literature. Our results suggest that offering programs to encourage e-waste recycling behavior can be a costly endeavor.Doctor of Philosoph