Essays on Operational Flexibilities in Production Planning under Supply and Quality Uncertainty

This dissertation investigates the use of operational flexibilities in production planning in order to mitigate the negative effects of supply and quality uncertainty. Uncertainties in supply and quality are commonly experienced among agro-businesses, and in particular, in the wine industry. The goal of the dissertation is to provide prescriptive solutions in mitigating such risks from the lives of agricultural businesses. The first essay of the dissertation examines the impact of supply and quality uncertainty on the investment decisions made by winemakers who lease vineyard space to grow their own fruit. At the end of the growing season, the winemaker receives an uncertain amount of high- and low-quality grapes, due to varying growing conditions such as adverse weather conditions, diseases and natural disasters. High-quality grapes are used in the making of a high-end (reserve) wine, and low-quality grapes are used for the production of a low-end wine. In this study, we investigate the benefits of the downward substitution flexibility, where the winemaker uses its excess high-quality grapes for the production of its low-end wine. In addition, we examine the influence of, and the interrelationships between, three forms of operational flexibilities: downward substitution, price-setting, and fruit trading flexibilities. The second essay of the dissertation investigates the use of advance selling to mitigate quality risk in wine production. This essay examines the influence of quality uncertainty on winemakers\u27 decisions regarding the allocation of its wine for retail operations. Specifically, we study what proportion of the wine should be sold through regular distribution channels versus what proportion should be sold as wine futures in advance of bottling. Due to the intricacies of the production method, the quality of wine may vary from the moment aging begins in the barrel to the time it is bottled and sold to the general public. This study examines the use of wine futures, whereby a winemaker sells its wine while it is still in the barrel in order to reduce the quality rating risk at the time of distribution. Overall, wine futures not only allow the winemaker to pass on the quality rating risk established through expert tastings to consumers but also let them bring in cash for immediate reinvestment into the next vintage

Essays on supply chain analytics: Investment and capacity planning under uncertainty

In this dissertation, we study a firm’s investment and capacity planning strategies in the presence of different types of supply uncertainties and risks. Both essays in this dissertation benefit from empirical analysis as the analytical models build on the findings and observations from the corresponding empirical investigation. Each essay shows the benefits from utilizing flexible options that are deemed to be less preferable before conducting the analysis. Wine futures investment represents the flexible option (due to its liquidity) in the first essay, however, it exhibits greater uncertainty in price than the traditional bottled wine. We find in our empirical analysis that both weather and market fluctuations influence the evolution of the price in wine futures, and thus, despite being the flexible option, it also represents the riskier investment. On the other hand, capacity expansion at a geographically remote facility represents the flexible option (due to its greater backup capabilities) in the second essay, however, it is a more costly backup alternative than a nearby facility. As a result, both essays examine the trade-offs between these flexible, yet risker and/or costlier, alternatives, and shed light on the risk-reward structure of these various operational levers

Rationing Capacity in Advance Selling to Signal Quality

We consider a seller who can sell her product over two periods, advance and spot. The seller has private information about the product quality, which is unknown to customers in advance and publicly revealed in spot. The question we consider is whether the seller has an incentive to signal quality in advance and, if so, how she can convey a credible signal of product quality. We characterize the seller's signaling strategy and find that rationing of capacity in the advance period is an effective tool of signaling product quality. We find that the high-quality seller can distinguish herself by allocating less capacity than the low-quality seller in the advance period. We show that this signaling mechanism exists whenever advance selling would be optimal for both the high-quality and low-quality sellers if quality information was symmetric. We compare capacity rationing with other signaling tools, such as pricing and advertising, and show that capacity rationing is the preferred one. Despite its capability of conveying quality information more efficiently than other tools, capacity rationing may still be very costly for the seller. When compared to the case when rationing was not allowed, the seller's ability to ration (rationing flexibility) sometimes makes the seller worse off, independently of her quality.http://deepblue.lib.umich.edu/bitstream/2027.42/100188/1/1204_Kapuscinski.pd

Why Islamic finance is different? a short review of Islamic jurisprudential interpretation about usury, ambiguity (Gharar), gambling (Maysir) and exploitative commercial arbitrage (Talaqi al-Rukban) / Mohammad Ashraful Ferdous Chowdhury.

Unlike the traditional Finance, Islamic finance must observe the teachings of Shari’ah whose basic teaching cannot be violated at any point in time. These basic teachings constitute the core element of the faiths that are best described as maqasid al-shari’ah. While prohibiting Riba, Gharar, Maysir, Islam promotes maslahah by protecting the interests and benefits of all parties involved in the market. This paper emphasizes on the main underlying causes (‘Illah) for the prohibition of these on the basis of Islamic and socio-economic point of views. This is paper is based on secondary sources such as classical books, articles etc. There is no difference of opinion among scholars that Riba, Gharar, Maysir is clearly prohibited by both Quran and the Sunnah. However, Questions continue to be raised about their meanings and implications because of the diverse applications in commercial transactions (Mu’malat). This paper is a humble attempt to clarify the meaning and implications of these terms

Strategic interaction between futures and spot markets.

There is a literature (e.g., Allaz and Vila, 1992 and Hughes and Kao, 1997) showing that in an oligopolistic context, the presence of a futures market induces firms to use it in order to increase its market share. The consequence of this behavior is that the total quantity supplied by the industry increases, thus making the oligopolistic outcome closer to the competitive equilibrium. In the present work, we propose a model to study the interaction of spot and futures markets that does not imply this pro-competitive effect. The model is the same as in Allaz and Vila in the sense that firms have infinitely many moments to trade in the futures market before the spot market takes place. We analyze the equilibria in the infinite case directly and show that many equilibria emerge in a kind of folk-theorem result (but ours is not a repeated game). The equilibrium in which firms do not use the forward market is particularly robust as it satisfies the most demanding definition of renegotiation-proofuess. Furthermore, if firms are allowed to buy in the futures market, they can sustain the monopolistic outcome in a renegotiation-proof equilibrium (notice that there is only one period in the spot market). We also study the role of information in the model and argue that our results fit better stylized facts of some industries like the power market in the U.K.Futures markets; Cournot competition; Collusion;

Forward buying of non-commodity consumer goods

Thesis (M. Eng. in Logistics)--Massachusetts Institute of Technology, Engineering Systems Division, 2007."June 2007."Includes bibliographical references (leaf 63).This thesis examines the feasibility of commodity-like forward and futures markets in non-commodity consumer goods. Benefits of information gleaned from the sale of products for future delivery are examined, as well as the market for wine futures, which serves as an example of a non-commodity futures market. Analysis is conducted by controlled experiments in a system dynamics model that simulates the bullwhip effect.by Jeffrey Wayne Kight.M.Eng.in Logistic

Where do prices come from? Sociological approaches to price formation

The article provides an overview of the state of the art of sociological research on price formation. The dominant trait of the sociological approach to prices is to understand price formation not as the outcome of individual preferences but as the result of the social and political forces operating within the market field. The article proceeds from the concept of market fields and is organized around the three dominant approaches in economic sociology: the network approach, the institutional approach, and the cultural approach. -- Der Artikel gibt einen Überblick über den Forschungsstand zum Thema Preisbildung in der Soziologie. Ausgangspunkt der Betrachtung von Preisen aus soziologischer Perspektive ist, diese nicht als das Resultat individueller Präferenzen zu verstehen, sondern als Ausdruck der sozialen und politischen Kräfte in Märkten. Der Artikel orientiert sich an dem Konzept der Marktfelder und ist anhand der drei Hauptrichtungen der Wirtschaftssoziologie strukturiert: des Netzwerkansatzes, des institutionellen Ansatzes und des kulturellen Ansatzes.

Markets from Meaning: Quality Uncertainty and the Intersubjective Construction of Value

This article explores price formation in markets where quality cannot be based on intrinsic characteristics of the good exchanged. In such markets, quality uncertainty is not an information problem as described by Akerlof in the market for lemons model. Instead, defining quality is a problem of contingent assessments that are arrived at intersubjectively through discursive practices and mutual observation of market participants. Quality is endogenous to the market process. Institutions and conventions play an important role, much as they do in the market for lemons model, but their function is to generate confidence rather than trust. Prices emerge in such markets from a combination of intersubjectively established quality assessments, institutions and existing structural characteristics of the market. I call this the markets from meaning model, which I develop based on the art market and expand to capital investments and financial speculation.1. Introduction 2. Art as an example of the model 3. Institutions 4. Application to investment markets 5. Conclusion Footnotes Bibliograph

The role of individual risk attitudes on old wine valuations

In this article, we report the results of an experiment designed to address the effect of risk atti-tudes on valuations of aged wines. Wefind that higher risk taking in the economic domain isassociated with a significantly higher willingness to pay for an old wine. Given the increasinginterest of consumers and investors in old wines, our results are applicable to the pricing of oldwines and to the use of auctions as an efficient willingness to pay elicitation me

The Commodity Question: New Thinking on Old Problems

human development, aid, trade, security