Herding in Queues with Waiting Costs: Rationality and Regret

We study how consumers with waiting cost disutility choose between two congested services of unknown service value. Consumers observe an imperfect private signal indicating which service facility may provide better service value as well as the queue lengths at the service facilities before making their choice. If more consumers choose the same service facility because of their private information, longer queues will form at that facility and indicate higher quality. On the other hand, a long queue also implies more waiting time. We characterize the equilibrium queue-joining behavior of arriving consumers and the extent of their learning from the queue information in the presence of such positive and negative externalities. We find that when the arrival rates are low, utility-maximizing rational consumers herd and join the longer queue, ignoring any contrary private information. We show that even when consumers treat queues as independently evolving, herd behavior persists with consumers joining longer queues above a threshold queue difference. However, if the consumers seek to minimize ex post regret when making their decisions, herd behavior may be dampened

Second Sourcing vs. Sole Sourcing with Capacity Investment and Asymmetric Information

We study the decision of a manufacturer (the buyer), expecting new sourcing opportunities in the future, in selecting between sole- and second-sourcing strategies for a noncommodity component. In a sole-sourcing strategy, the buyer commits to sourcing from a single supplier (the incumbent) over the entire horizon. In a second-sourcing strategy, the buyer keeps the option open to source from a new supplier (the entrant) in the future. Supplier costs are private information, and the incumbent's cost may change in the future because of what it has learned. The buyer is relatively sure about current demand but uncertain about future demand. A supplier has to invest in capacity to produce the inputs for the buyer. With future private cost information, the incumbent earns rent in the future, and this prospective rent influences the incumbent's decision early in the horizon. On one hand, a second-sourcing strategy allows the buyer to take advantage of alternative sourcing opportunities, lowering her future cost. This benefit to the buyer is referred to as the option value of second sourcing. On the other hand, the future supplier competition in second-sourcing hurts the incumbent's future profit. The expectation of a lower future profit in second sourcing induces the incumbent to ask for a higher price at the beginning of the horizon. This causes more initial sourcing cost for the buyer in second sourcing than in sole sourcing, and is referred to as the cost of future supplier competition of second sourcing. The overall benefit of second sourcing relative to sole sourcing is influenced by the demand distribution and capacity cost. If the demand increases over time with positive probability, the incumbent's initial capacity may not be able to cover all future demand. If the capacity is cheap, the entrant may serve as an exclusive supplier, ousting the incumbent. In this case, the option value of second sourcing is high. If the capacity is expensive, the entrant may serve as a supplementary supplier by receiving only the demand in excess of the incumbent's installed capacity. In this case, the cost of future supplier competition is low and the option value is still significant. Thus second sourcing is better than sole sourcing not only when the capacity cost is low, but also when it is high (under the condition that demand increases over time with positive probability and the entrant's cost is relatively low). For intermediate capacity cost, the cost of future supplier competition dominates the option value; hence, sole sourcing is preferred. We also find that second sourcing is more attractive when the buyer expects the future demand to be higher or more volatile. Finally, more initial incumbent capacity strengthens the incumbent's competitiveness against the entrant, reducing the cost of future supplier competition. As a result, we find that second sourcing may lead to overinvestment of the initial capacity.sourcing, auction, supplier relationship, supply chain management

Erratum to "Buy Now and Match Later: Impact of Posterior Price Matching on Profit with Strategic Consumers"

On page 37 of the article "Buy Now and Match Later: Impact of Posterior Price Matching on Profit with Strategic Consumers" by Guoming Lai, Laurens Debo, and Katia Sycara Manufacturing & Service Operations Management, Winter 2010, Vol. 12, No. 1, 33-55) , to the beginning of §3.4 Purchasing Behavior, the following sentence should be added: "Similar to Png (1991), we assume that the consumers will make no purchase if the price is higher than V H and thus the seller will not set the first-period price above V H in our model. Furthermore...." The assumption that p 1 \le V H was made, but was not stated explicitly in the model set-up section.

Sharing inventory risk in supply chain: The implication of financial constraint

A supply chain may operate under either preorder mode, consignment mode or the combination of these two modes. Under preorder, the retailer procures before the sale and takes full inventory risk during the sale, while under consignment, the retailer sells the product for the supplier with the supplier taking the inventory risk. The combination mode shares the risk in the supply chain. The existing research has examined the supply chain modes from various operational aspects. However, the impact of financial constraint is neglected. This paper examines the impact of financial constraint and investigates the supply chain efficiency under each mode. Based on a Stackelberg game with the supplier being the leader, we show that without financial constraint the supplier always prefers the consignment mode, taking full inventory risk. Whereas, in the presence of financial constraint, the supplier will sell part of the inventory to the retailer through preorder, which shares the inventory risk in the supply chain. We show that with financial constraint, the combination mode is the most efficient mode even if the retailer earns zero internal capital.Newsvendor model Stackelberg game Preorder Consignment Bankruptcy

Component-Based Technology Transfer in the Presence of Potential Imitators

Technology transfer to low-cost locations offers global firms an opportunity to reduce their variable costs involved in serving emerging markets. However, such moves may also make imitation by local competitors easier. As a consequence, technology transfer may create competition in the local market. We introduce component-based technology transfer for the global firm as a means to deter or accommodate the imitators' entry, recognizing that components may differ in technological complexity. By choosing a subset of components to transfer, the global firm's decision has an impact not only on the imitators' fixed entry costs, but also on postentry competition based on variable costs. Our research identifies two different types of deterrence strategies--the barrier-erecting strategy and the market-grabbing strategy. In the former deterrence strategy, the global firm retains enough component technology in the home country to make the potential imitator's fixed entry costs so high that it is not worthwhile entering. In the latter deterrence strategy, the global firm transfers enough component technology to the emerging market, reducing the global firm's variable cost to make the potential imitator's revenues so low that it is not worthwhile entering. Which deterrence strategy the global firm should employ depends on the degree to which geographical proximity reduces imitation costs and the degree of differentiation between the local firm's and the global firm's products. Some other interesting and counterintuitive results arise. For example, it may benefit a global firm to transfer less technology for products with a higher emerging market potential.technology transfer, cost-saving potential, technology imitation, sourcing