A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft

This paper develops a multi-agent dynamic model of the commercial aircraft industry and then uses that model to analyze industry pricing, industry performance, and optimal industry policy. In the model, firms are differentiated in their products and cost structure, and entry, exit, prices, and quantity sold are endogenously determined in dynamic equilibrium. Re ecting the focus of the paper, demand and supply are modeled structurally, while investment is modeled in reduced form. The model utilizes a cost model of commercial aircraft production developed and estimated in a previous paper (Benkard (2000)), and a discrete choice model of commercial aircraft demand to determine static profits. I find that many unusual aspects of the aircraft data, such as high concentration and pricing below the level of static marginal cost, are explained by this model. The model also replicates the stochastic evolution of the industry well. Many of these properties could not be explained with a static model. These results provide support for the structural dynamic modeling approach in general. I also find that the unconstrained Markov perfect equilibrium is quite efficient from a social perspective, providing only 9% less welfare on average than a social planner would obtain, but that the Markov perfect equilibrium shifts a substantial amount of welfare from consumers to producers. Finally, I provide simulation evidence that an anti-trust policy in the form of a concentration restriction would be welfare reducing with high probability.

Agent-based transportation planning compared with scheduling heuristics

Here we consider the problem of dynamically assigning vehicles to transportation orders that have di¤erent time windows and should be handled in real time. We introduce a new agent-based system for the planning and scheduling of these transportation networks. Intelligent vehicle agents schedule their own routes. They interact with job agents, who strive for minimum transportation costs, using a Vickrey auction for each incoming order. We use simulation to compare the on-time delivery percentage and the vehicle utilization of an agent-based planning system to a traditional system based on OR heuristics (look-ahead rules, serial scheduling). Numerical experiments show that a properly designed multi-agent system may perform as good as or even better than traditional methods

Dynamic price competition with fixed capacities

Many revenue management (RM) industries are characterized by (a) fixed capacities in the short term (e.g., hotel rooms, seats on an airline flight), (b) homogeneous products (e.g., two airline flights between the same cities at similar times), and (c) customer purchasing decisions largely influenced by price. Competition in these industries is also very high even with just two or three direct competitors in a market. However, RM competition is not well understood and practically all known implementations of RM software and most published models of RM do not explicitly model competition. For this reason, there has been considerable recent interest and research activity to understand RM competition. In this paper we study price competition for an oligopoly in a dynamic setting, where each of the sellers has a fixed number of units available for sale over a fixed number of periods. Demand is stochastic, and depending on how it evolves, sellers may change their prices at any time. This reflects the fact that firms constantly, and almost costlessly, change their prices (alternately, allocations at a price in quantity-based RM), reacting either to updates in their estimates of market demand, competitor prices, or inventory levels. We first prove existence of a unique subgame-perfect equilibrium for a duopoly. In equilibrium, in each state sellers engage in Bertrand competition, so that the seller with the lowest reservation value ends up selling a unit at a price that is equal to the equilibrium reservation value of the competitor. This structure hence extends the marginal-value concept of bid-price control, used in many RM implementations, to a competitive model. In addition, we show that the seller with the lowest capacity sells all its units first. Furthermore, we extend the results transparently to n firms and perform a number of numerical comparative statics exploiting the uniqueness of the subgame-perfect equilibrium.revenue management, bid-prices, subgame-perfect equilibrium.

Firms, international money and prices: a survey of the literature

Sluggish price adjustments with respect to exchange rate shocks take essentially two forms. Firstly, prices do not adjust completely to neutralize the effects of nominal exchange rate shocks. Secondly, price adjustments after exchange rate shocks only take place in discrete time intervals, in other words they are discontinuous. These two features of price adjustments form our definition of international price rigidities. In this paper we shall present a survey of the empirical and theoretical literature on international price rigidities. We provide the underlying intuition of the theoretical research and present a brief summary of the empirical findings

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