the allocation of inventory risk in a supply chain push pull and advance purchase discount contracts while every firm in a supply chain bears supply risk the cost of insufficient supply some firms may even with wholesale price contracts completely avoid inventory risk the cost of unsold inventory with a push contract there is a single wholesale price and the retailer by ordering his entire supply before the selling season bears all of the supply chain s inventory risk a pull contract also has a single wholesale price but the supplier bears the supply chain s inventory risk because only the supplier holds inventory while the retailer replenishes as needed during the season examples include vendor managed inventory with consignment and drop shipping an advance purchase discount has two wholesale prices a discounted price for inventory purchased before the season and a regular price for replenishments during the selling season advance purchase discounts allow for intermediate allocations of inventory risk the retailer bears the risk on inventory ordered before the season while the supplier bears the risk on any production in excess of that amount this research studies how the allocation of inventory risk via these three types of wholesale price contracts impacts supply chain efficiency the ratio of the supply chain s profit to its maximum profit it is found that the efficiency of a single wholesale price contract is considerably higher than previously thought as long as firms consider both push and pull contracts in other words the literature has exaggerated the value of implementing coordinating contracts i e contracts that achieve 100 efficiency such as buy backs or revenue sharing because coordinating contracts are compared against an inappropriate benchmark often just a push contract furthermore if firms also consider advance purchase discounts which are also simple to administer then the coordination of the supply chain and the arbitrary allocation of its profit is possible several limitations of advance purchase discounts are discussed

improving supply chain performance and managing risk under weather related demand uncertainty we consider a manufacturer retailer supply chain for a seasonal product whose demand is weather sensitive the retailer orders from the manufacturer supplier prior to the selling season and then sells to the market we examine how a manufacturer can structure a weather linked rebate to improve his expected profit the proposed class of rebate contracts offers several advantages over many other contract structures including no required verification of leftover inventory and or markdown amounts and no adverse effect on sales effort by the retailer we provide a thorough analysis of the manufacturer s and retailer s decisions in this context we show that the weather linked rebate can take many different forms and this flexibility allows the supplier to design contracts that are pareto improving and or limit his risk in offering the contract and the retailer s risk in accepting it for weather rebates with certain characteristics the manufacturer can fully hedge his risks of offering a weather rebate by paying a risk premium we show how this can be accomplished we also show that the basic structural results extend to settings in which the two parties would like to limit their risk

competition and cooperation in decentralized push and pull assembly systems in this paper we study a decentralized assembly system consisting of a single assembler who buys complementary components from independent suppliers under two contracting schemes push and pull in both schemes the component suppliers are allowed to freely form coalitions or alliances among themselves to better coordinate their pricing or production decisions we show that the sole driver of the inefficiency in a push system which is due to horizontal decentralization of suppliers is the number of alliances that were formed specifically it is shown that in a push system the assembler s profit the total profit of all suppliers and the consumers surplus are all decreasing in the number of coalitions and are thus maximized when the grand coalition is formed we further carry out a stability analysis of coalition structures to verify to what extent suppliers can reduce or eliminate the inefficiency due to their decentralization by forming alliances we show that in a push system with more than two

optimal pricing and return policies for perishable commodities this paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life a hierarchical model is developed and the results of the single period inventory model are used to examine possible pricing and return policies the paper shows that several such policies currently in effect are suboptimal these include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted the paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination but that the optimal return allowance will be a function of retailer demand therefore such a policy cannot be optimal in a multi retailer environment it is proven however that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi retailer environment this article was originally published in marketing science volume 4 issue 2 pages 166 176 in 1985

loss aversion and rationality in the newsvendor problem under recourse option abstract risk neutral assumption in the newsvendor problem under recourse option predicts the order quantity insensitive to the selling price and risk aversion modeled through common utility functions gives decreasing order quantity with increasing selling price in this paper we consider loss aversion to model the choice preference of the decision maker in the newsvendor problem under recourse option and prove that loss aversion predicts the rational ordering behavior of the newsvendor with respect to the changes in price and cost parameters further we find that loss aversion can significantly improve the performance of utility function based models in predicting the rational behavior we extend the analysis to a supply chain setting and establish coordinating contract between a loss averse retailer facing a newsvendor problem and a risk neutral supplier under recourse option we find that the contract parameter does not depend on the loss aversion hence the same contract can be implemented with retailers with different levels of loss aversion

option pricing with downward sloping demand curves the case of supply chain options this article investigates the role of option contracts in a supply chain when the demand curve is downward sloping we consider call put options that provide the retailer with the right to reorder return goods at a fixed price we show that the introduction of option contracts causes the wholesale price to increase and the volatility of the retail price to decrease in general options are not zero sum games conditions are derived under which the manufacturer prefers to use options when this happens the retailer is also better off if the uncertainty in the demand curve is low however if the uncertainty is sufficiently high then the introduction of option contracts alters the equilibrium prices in a way that hurts the retailer

the benefits of advance booking discount programs model and analysis consider a retailer who sells perishable seasonal products with uncertain demand due to the short sales season and long replenishment lead times associated with such products the retailer is unable to update demand forecasts by using actual sales data generated from the early part of the season and to respond by replenishing stocks during the season to overcome this limitation we examine the case in which the retailer develops a program called the advance booking discount abd program that entices customers to commit to their orders at a discount price prior to the selling season the time between placement and fulfillment of these precommitted orders provides an opportunity for the retailer to update demand forecasts by utilizing information generated from the precommitted orders and to respond by placing a cost effective order at the beginning of the selling season in this paper we evaluate the benefits of the abd program and characterize the optimal discount price that maximizes the retailer s expected profit

a contract for coordinating capacity decisions in a business to business b2b supply chain abstract we address the problem of coordinating the capacity decisions of two autonomous manufacturers engaged in a buyer supplier relationship we propose and analyze a supply contract designed to coordinate the companies single period capacities so that both parties end up better off than they would by trading solely through the market the setting is frequently found in supply chains as the contract does not forbid the parties to also trade in the market under the proposed contract each party decides on his own medium term capacity when demands are still only probabilistically known when the demand is realized the supplier must sell to the buyer at a discount contract price up to a contract reservation quantity and the buyer will pay a contract penalty for each unit he reserved but did not order the supplier can sell any leftover capacity on the market and if the buyer needs more than the reserved quantity he must purchase from the supplier at market price or from the market if the supplier s capacity does not suffice the main achievements gained through this research are i conditions for the companies capacity decisions to obtain coordination under the contract ii conditions for the contract to coordinate the parties decisions and leave both better off iii characterization of contract instances in which the profit can be arbitrarily distributed between the parties and iv identification of two distinct kinds of gain produced by the contract finally we illustrate the main properties of the contract with numerical examples

demographic change and policy responses implications for the global economy the fertility declines associated with the final phase of the global demographic transition have led to slower population growth and accelerated ageing in developed countries and in several advanced developing countries a global demographic and economic model is used to assess the implications of these changes for population sizes age gender distributions labour force growth and their implications for economic performance a baseline projection that incorporates declining fertility is compared with a hypothetical constant population growth scenario the results show that slower population growth and ageing reduces average saving rates in industrial regions yet global investment demand is also slowed and saving rates rise in developing regions so there is no net tightening of financial markets increased aged labour force participation considered one solution to the resulting rise in aged dependency in advanced regions is found to redistribute investment in favour of the industrialised regions and hence to accelerate their per capita income growth while conferring on the other regions compensatory terms of trade improvements the alternative of replacement migration is found to require inconceivably large population movements it also impairs real per capita growth in destination regions but by least in western europe where the terms of trade are improved by the immigration

target pricing demand side versus supply side approaches abstract the practice of target pricing has been a key factor in the success of japanese manufacturers in the more commonly known demand side approach the target price for the supplier equals the manufacturer s market price less a percent margin for the manufacturer but no cost improvement expenses are shared in the supply side approach cost improvement expenses are shared and the target price equals the supplier s cost plus a percent margin for the supplier using a general oligopoly and cournot duopoly models we characterize the equilibrium and optimal policy for each approach under various conditions we find that sharing cost reduction expenses allows the manufacturer using the supply side approach to attain competitive advantage in the form of increased market share and higher profit particularly in industrial conditions where margins are thin and price sensitivities are high

price and order postponement in a decentralized newsvendor model with multiplicative and price dependent demand we analyze the effect of price and order postponement in a decentralized newsvendor model with multiplicative and price dependent demand wherein the manufacturer sets the wholesale price and possibly offers a buyback rate and the retailer determines the order quantity and retail price such postponement strategies can be used by the retailer by delaying his operational decisions order quantity and retail price until after demand uncertainty is observed we show how the equilibrium values of the contract parameters and profits are affected by i vertical competition ii type of contract wholesale price only or buyback iii demand distribution iv form of the expected demand function and v the timing of the retailer s operational decisions although in most cases postponement is quite beneficial for the channel members we show that for some model parameters due to vertical competition the expected value of perfect information about demand for price postponement and order postponement may be negative for the channel and even surprisingly for both members we also show that when a buyback option is offered neither order postponement nor price postponement has an effect on the equilibrium wholesale price profit allocation ratio between the manufacturer and the retailer and channel efficiency and that the equilibrium wholesale price expected retail price profit allocation ratio between the manufacturer and the retailer and channel efficiency in the model with buyback options under either order or price postponement further coincide with their counterparts in the corresponding deterministic model

the price of anarchy in supply chains quantifying the efficiency of price only contracts in this paper we quantify the efficiency of decentralized supply chains that use price only contracts with a price only contract a buyer and a seller agree only on a constant transaction price without specifying the amount that will be transferred it is well known that these contracts do not provide incentives to the parties to coordinate their inventory capacity decisions we measure efficiency with the price of anarchy poa defined as the largest ratio of profits between the integrated supply chain that is fully coordinated and the decentralized supply chain we characterize the efficiency of various supply chain configurations push or pull inventory positioning two or more stages serial or assembly systems single or multiple competing suppliers and single or multiple competing retailers

openness to trade in manufactures in the oecd abstract how open are the advanced economies to trade with each other in this paper openness is calculated relative to the predictions of the monopolistic competition trade model using data on manufacturing trade and production in the oecd in 1985 the paper finds that 1 japan imports much less than other large oecd countries while the european countries have larger import volumes than does the us 2 japan and the us engage in less intra industry trade than the rest of the oecd and 3 the eu countries are less open to imports from japan and the us than those countries are open to imports from the eu

reducing the cost of demand uncertainty through accurate response to early sales traditionally fashion products have incurred high losses due to stockouts and inventory obsolence because long lead times coupled with a concentrated selling season force all or at least most production to be committed before demand information is available under a quick response system lead times are shortened sufficiently to allow a greater portion of production to be scheduled in response to initial demand we model and analyze the decisions required under quick response and give a method for estimating the demand probability distributions needed in our model we applied these procedures with a major fashion skiwear firm and found that cost relative to the current informal response system was reduced by enough to increase profits by 60 relative to the cost that would have been incurred if no response were used optimized response reduces cost by enough to roughly quadruple profits

strategic commitments for an optimal capacity decision under asymmetric forecast information we study the important problem of how to assure credible forecast information sharing between a supplier and a manufacturer the supplier is responsible for acquiring the necessary capacity before receiving an order from the manufacturer who possesses private forecast information for her end product we address how different contracts affect the supplier s capacity decision and hence the profitability of the supplier and the manufacturer we fully develop two contracts and provide explicit formulae to enable credible forecast information sharing the first is a nonlinear capacity reservation contract under which the manufacturer agrees to pay a fee to reserve capacity the second is an advance purchase contract under which the manufacturer is induced to place a firm order before the supplier secures the component capacity used to build the end product these contracts serve a strategic role in information sharing the capacity reservation contract enables the supplier to detect the manufacturer s private forecast information while the advance purchase contract enables the manufacturer to signal her forecast information we show that channel coordination is possible even under asymmetric forecast information by combining the advance purchase contract with an appropriate payback agreement through our structural and numerical results we also show that the degree of forecast information asymmetry and the risk adjusted profit margin are two important drivers that determine supply chain efficiency and which contract to adopt

how to price discriminate when tariff size matters firms that serve a large market with many diverse consumer types use discriminatory or nonlinear pricing to extract higher revenue inducing consumers to separate by self selecting from a large number of tariff options but the extent of price discrimination must often be tempered by the high costs of devising and managing discriminatory tariffs including costs of supporting consumers in understanding and making selection from a complex menu of choices these tariff design trade offs occur in many industries where firms face many consumer types and each consumer picks the number of units to consume over time examples include wireless communication services other telecom and information technology products legal plans fitness clubs automobile clubs parking healthcare plans and many services and utilities this paper evaluates alternative ways to price discriminate while accounting for both revenues and tariff management costs the revenue maximizing menu of quantity price bundles can be very or infinitely large and hence not practical instead two part tariffs 2pts which charge a fixed entry fee and a per unit fee can extract a large fraction of the optimal revenue with a small menu of choices and they become more attractive once the costs of tariff management are factored in we show that three part tariffs 3pts which use an additional instrument the free allowance are an even more efficient way to price discriminate a relatively small menu of 3pts can be more profitable than a menu of 2pts of any size this 3pt menu can be designed with less information about consumer preferences relative to the menu of two part tariffs which in order to segment customers optimally needs fine grained information about preferences our analysis reveals a counterintuitive insight that more complex tariffs need not always be more profitable it matters whether the complexity is from many choices or more pricing instruments

supply chain coordination with multiple shipments the optimal inventory subsidizing contracts we study a supply chain involving a supplier retailer relationship when production lead time is long and the selling season is short the retailer has to place an order ahead of the season which resembles the classical newsvendor model however we consider the situation when the supplier agrees to deliver the order in multiple shipments in the season and then the retailer needs to determine the quantity and or timing of each shipment under a centralized setting we derive the optimal quantity and or timing decisions of the retailer under a decentralized setting incentive misalignment arises from ineffective allocation of inventory costs between the parties in addition to the well known double marginalization effect hence we devise an incentive contract which involves a risk sharing mechanism at the end of the season and an inventory subsidizing scheme for the entire season in practice the inventory subsidizing scheme can be implemented in different ways such as a direct subsidizing scheme o

who benefits from transshipment exogenous vs endogenous wholesale prices this paper studies how transshipments affect manufacturers and retailers considering both exogenous and endogenous wholesale prices for a distribution system where a single manufacturer sells to multiple identical cost retailers we consider both the manufacturer being a price taker and the manufacturer being a price setter in a single period setup under multivariate normal demand distribution in the case of the manufacturer being a price taker we provide several analytical results regarding the effects of key parameters on order quantities and profits in the case of the manufacturer being a price setter we characterize the stackelberg game that arises and provide several insights into how the game dynamics are affected by transshipments specifically we find that risk pooling makes retailers order quantities less sensitive to the wholesale price set by the manufacturer hence in general the manufacturer benefits from retailers transshipments by charging a higher wholesale price while retailers are often worse off the paper captures the effect of demand correlation and the effect of the number of retailers throughout and it illustrates the findings by a numerical example we also provide an interactive web page for numerical experiments

allocational flexibility in constrained supply chains abstract we show that when a one supplier one newsvendor supply chain is capacity constrained wholesale price contracts have some flexibility in allocating the channel optimal profit we analyze how this flexibility changes as we change the supply chain s capacity constraint and market demand we also explore the allocation that is achieved in equilibrium in a newsvendor procurement game finally we generalize our results to risk sharing contracts and show that those contracts also gain additional flexibility in allocating the channel optimal profit

efficient supply contracts for fashion goods with forecast updating and two production modes we examine the problem of developing supply contracts that encourage proper coordination of forecast information and production decisions between a manufacturer and distributor of high fashion seasonal products operating in a two mode production environment the first production mode is relatively cheap but requires a long lead time while the second is expensive but offers quick turnaround we focus on contracts of the form w1 w2 b wherewi is the wholesale price offered for production modei andb is a return price offered for items left over at the end of the season we find that such a contract can coordinate the manufacturer and distributor to act in the best interest of the channel the pricing conditions needed to ensure an efficient solution vary depending on the degree of demand forecast improvement between periods and the manufacturer s access to forecast information we also examine whether these conditions ensure a pareto optimal solution with respect to two traditional production settings

game theoretic analyses of decentralized assembly supply chains non cooperative equilibria vs coordination with cost sharing contracts abstract this paper considers a multiple supplier single manufacturer assembly supply chain where the suppliers produce components of a short life cycle product which is assembled by the manufacturer in this single period problem the suppliers determine their production quantities and the manufacturer chooses the retail price we assume that the manufacturer faces a random price dependent demand in either additive or multiplicative form for each case we analyze both simultaneous move and leader follower games to respectively determine the nash and stackelberg equilibria and find the globally optimal solution that maximizes the system wide expected profit then we introduce appropriate buy back and lost sales cost sharing contracts to coordinate this assembly supply chain so that when all the suppliers and the manufacturer adopt their equilibrium solutions the system wide expected profit is maximized

incentive and production decisions for remanufacturing operations we consider a manufacturer producing original products using virgin materials and remanufactured products using returns from the market where the amount of returns depend on the incentive offered by the manufacturer we determine the optimal value of this incentive and the optimal production quantities in a stochastic demand setting with partial substitution we analyze 3 different models in centralized and decentralized settings where the collection process of the returns is managed by a collection agency in the decentralized setting we also analyze contracts to coordinate the decentralized systems and determine the optimal contract parameters finally we present our computational study to observe the effect of different parameters on the system performance

effect of partial cross ownership on supply chain performance abstract partial cross ownership pco in a dyad supply chain refers to a situation where each firm holds a portion of its partner s shares we study this topic in push and pull supply chains and prove that neither the supply chain s nor any member s profit changes with the percentage of the leader s shares the follower holds however while the profits of the chain and the leader increase with the percentage of the follower s shares held by the leader the follower s profit does not necessarily increase or decrease as a result both partners can always achieve a win win by setting a proper price for transferring the follower s shares to the leader moreover the equilibrium wholesale price may be greater than the retail price in the push chain but less than the marginal production cost in the pull chain contradicting the usual results found in the literature we also derive a necessary and sufficient condition on the structure of pco allowing a pull chain to perform better than a push one this extends cachon 2004 s result that a pull chain always performs better than a push one without pco finally pco can coordinate a chain if and only if each one holds half of the other s shares

push pull or both a behavioral study of how the allocation of inventory risk affects channel efficiency in this paper we experimentally investigate how the allocation of inventory risk in a two stage supply chain affects channel efficiency and profit distribution we first evaluate two common wholesale price contracts that differ in which party incurs the risk associated with unsold inventory a push contract in which the retailer incurs the risk and a pull contract in which the supplier incurs the risk our experimental results show that a pull contract achieves higher channel efficiency than that of a push contract and that behavior systematically deviates from the standard theory in three ways 1 stocking quantities are set too low 2 wholesale prices are more favorable to the party stocking the inventory and 3 some contracts are erroneously accepted or rejected to account for these systematic regularities we extend the existing theory and structurally estimate a number of behavioral models the estimates suggest that a combination of loss aversion with errors organizes our data remarkably well we apply our behavioral model to the advance purchase discount apd contract which combines features of push and pull by allowing both parties to share the inventory risk in a separate experiment as an out of sample test and we find that it accurately predicts channel efficiency and qualitatively matches decisions two practical implications of our work are that 1 the push contract performs close to standard theoretical benchmarks which implies that it is robust to behavioral biases and 2 the apd contract weakly pareto dominates the push contract retailers are better off and suppliers are no worse off under the apd contract data as supplemental material are available at http dx doi org 10 1287 mnsc 2014 1940 this paper was accepted by serguei netessine operations management

on a multi period supply chain system with supplementary order opportunity abstract this paper considers a supplementary supply order system in a multi period situation in each period the buyer first places an initial order based on the demand prediction he has the opportunity to place a supplementary order with the supplier after the demand of that period is realized the supplier maintains an inventory and decides the quantity to be produced and the quantity to be provided for the supplementary order in each time period we formulate the problem as a multi period inventory game and derive the optimal production and order policies for the supplier and buyer respectively the existence and uniqueness of nash equilibrium is proved in the generalized multi period setting and the closed form nash equilibrium solution is obtained when the parameters are stationary numerical study is performed to reveal more managerial insights we find that the supplementary supply order mechanism if designed properly can effectively improve the multi period supply chain performance

bargaining with a residual claimant an experimental study we conduct an experiment of two player bargaining in which the payo to one player is subject to ex post risk while the other player receives a xed payment eectively making the player exposed to risk a residual claimant contrary to intuition recent theoretical work argues that exposure to risk may actually be benecial to the residual claimant and we test this in a controlled lab experiment our results suggest that asymmetric exposure to risk creates dierent self serving notions of fairness for the two types of players which leads to bargaining conict and even disagreements residual claimants are able to extract a larger share of the pie when bargaining over a risky distribution moreover some residual claimants actually do better in an expected utility sense by being exposed to risk however contrary to the theoretical prediction it is the comparatively less risk averse residual claimants who appear to benet the most through their exposure to risk in a subsequent study where residual claimants are able to choose between a less risky or a more risky distribution over which to bargain few choose the riskier distribution except when the possibility of an ex pose fair split exists consistent with our earlier results the relatively less risk averse residual claimants are more likely to choose the riskier distribution

sustaining long term supply chain partnerships using price only contracts abstract in this paper we study how an informal long term relationship between a manufacturer and a retailer performs in turbulent market environments characterized by uncertain demand we show that the long term partnership based on repeated interaction is sustainable under price only contracts when the supply chain partners are sufficiently patient that is the channel can be coordinated over a long time horizon when the factor whereby the members discount the future value of this trusting relationship is sufficiently high second above the minimum discount factor a range of wholesale prices exists that can sustain the long term partnership and there are different possible profit divisions between the two players third when the market is turbulent i e either the expected demand or the demand variance changes from period to period according to a probabilistic law it is typically less possible to sustain the long term partnership in a booming market or in a market with low demand variability finally obtaining more information about future market fluctuation may not help the supply chain to sustain the long term partnership due to partners strategic considerations with the availability of the market signal total supply chain profits increase but the retailer may even be worse off

a bootstrap test for jumps in financial economics abstract an i i d bootstrap is applied for the ratio test of barndorff nielsen and shephard 2006 for jumps in jump diffusion processes asymptotic validity is established for the bootstrap test both under the null of no jump and under the alternative of jumps finite sample simulation shows that the bootstrap test has more stable size than the ratio test of barndorff nielsen and shephard 2006

selling to the newsvendor with a forecast update analysis of a dual purchase contract we consider a supply chain in which a manufacturer sells to a procure to stock retailer facing a newsvendor problem with a forecast update under a wholesale price contract the retailer waits as long as she can and optimally places her order after observing the forecast update we show that the retailer s wait and decide strategy induced by the wholesale price contract hinders the manufacturer s ability to 1 set the wholesale price and maximize his profit 2 hedge against excess inventory risk and 3 reduce his profit uncertainty to mitigate the adverse effect of wholesale price contract we propose the dual purchase contract through which the manufacturer provides a discount for orders placed before the forecast update we characterize how and when a dual purchase contract creates strict pareto improvement over a wholesale price contract to do so we establish the retailer s optimal ordering policy and the manufacturer s optimal pricing and production policies we show how the dual purchase contract reduces profit variability and how it can be used as a risk hedging tool for a risk averse manufacturer through a numerical study we provide additional managerial insights and show for example that market uncertainty is a key factor that defines when the dual purchase contract provides strict pareto improvement over the wholesale price contract

capacity reservation contracts for high tech industry abstract capacity reservation provides a risk sharing mechanism that encourages a manufacturer to expand its capacity more we propose a deductible reservation dr contract where customers reserve future capacity with a fee that is deductible from the purchasing price the manufacturer s ex ante announcement of the excess capacity that she will have in addition to the reservation amount is a unique feature of the dr contract an individually rational dr contract that provides channel coordination always exists since there is a unique nash equilibrium for the reservation game among multiple customers the main results of the one customer case can be extended to the n customer case the dr contract is compared with another capacity reservation contract called take or pay while the manufacturer may gain more profit under a take or pay contract there may not be a channel coordinated contract that is also individually rational for the customer finally the similarities and differences between the capacity reservation contracts and other well known supply contracts are discussed

managing product variety with advance selling and capacity restrictions abstract in this research we analyze the impact of advance selling with price discount on a firms ability to maximize the expected profit the production environment of the firm is characterized by short selling cycle multiple products demand variability and capacity restrictions the advance orders are randomly distributed with the parameters dependent on the discount levels under advance selling the advance orders are used to update the demand forecast of selling season and are delivered at the start of the selling season the problem is modeled as a three stage stochastic non linear programming problem we derive the concavity of the problem under customers willingness to buy in advance our solution methodology comprises the variance reduction technique of antithetic variates that gives credible value of price discount levels for different sets of demand values we also provide sensitivity analysis of the problem parameters to derive insights into the behavior of the expected profit and the benefits due to advance selling under capacity restrictions

cargo capacity management with allotments and spot market demand we consider a problem faced by an airline that operates a number of parallel flights to transport cargo between a particular origin to destination pair the airline can sell its cargo capacity either through allotment contracts or on the spot market where customers exhibit choice behavior between different flights the goal is to simultaneously select allotment contracts among available bids and find a booking control policy for the spot market to maximize the sum of the profit from the allotments and the total expected profit from the spot market we formulate the booking control problem on the spot market as a dynamic program and construct approximations to its value functions which can be used to estimate the total expected profit from the spot market we show that our value function approximations provide upper bounds on the optimal total expected profit from the spot market and they allow us to solve the allotment selection problem through a sequence of linear mixed integer programs with a special structure furthermore the value function approximations are useful for constructing a booking control policy for the spot market with desirable monotonic properties computational experiments show that the proposed approach can be scaled to realistic problems and provides well performing allotment allocation and booking control decisions

risk hedging in a supply chain option vs price discount abstract in this research two risk hedging strategies the option contract and the advance purchase discount contract are investigated within a manufacturer retailer two echelon supply chain context this study offers three contributions first the optimal decisions under the two contracts from the perspectives of both the manufacturer and the retailer are determined second circumstances under which supply chain coordination can be reached are identified third the scenario of loss averse manufacturer has been explored the results of the analysis provide practical insights to the manufacturer when she plans production quantity and to the retailer when he replenishes inventory

on sequential commitment in the price dependent newsvendor model abstract we investigate the effect of sequential commitment in the decentralized newsvendor model with price dependent demand sequential commitment allows the self profit maximizing parties to commit to contract parameters e g wholesale price retail price buyback price and order quantity sequentially and alternately and we investigate its effect on the equilibrium profits of the channel and its members sequential commitment introduces more flexibility to contracting in the supply chain and our analysis can provide some insight to channel members who follow a bargaining process to determine the values of contract parameters we show that the introduction of sequential commitment to the price dependent pd newsvendor model with buybacks can significantly improve the manufacturer s and the channel expected profits but it can also decrease the retailer s expected profit finally we demonstrate that with sequential commitment under some conditions the choice of the first mover is endogenized and we identify the unique sequence of commitments by channel members that would arise in equilibrium

vertical contracts in a supply chain and the bullwhip effect this paper shows that decentralized supply chains in which upstream firms use linear wholesale prices may experience lower upstream production and downstream sales volatility than vertically inte

supply chain performance and consumer surplus under alternative structures of channel dominance abstract supply chain partnerships exhibit varying degrees of power distribution among the agents this has implications for pricing and operational decisions in the channel and eventually influences the end customers to understand how different power schemes affect the supply chain partners performance and consumer surplus we study channel structures with a dominant manufacturer a dominant retailer and no single agent dominance under random and price sensitive demand channel dominance is interpreted in our setting as exerting power to determine the retail and wholesale prices as well as to transfer the inventory risk to the weaker party we analyze all problems in a game theory based framework and characterize the equilibrium retail price wholesale price and order production quantity we show that the manufacturer dominated channel structure leads to the highest production quantity the lowest retail price and the largest expected surplus for an individual buyer on the other hand the entire channel profit and the total consumer surplus are highest when the retailer holds the channel dominance while both the manufacturer and the retailer are better off when they become a power agent individually channel dominance does not always guarantee higher share of channel profits as we show under the manufacturer dominated structure further insights are derived analytically and numerically from comparisons of the manufacturer retailer dominance schemes with the no single agent dominance structure and integrated channel we also study extensions to investigate the effect of demand model and risk sharing and we address industry settings with alternative schemes of holding cost shortage penalty and salvage value

goodwill hunting and profit sharing decision making in a newspaper chain a generalised equilibrium solution to the stochastic two echelon newsvendor problem is achievable when formulated in the context of some cooperation and coordination between the primal retailer and dual manufacturer operators we build on previous work detailing this equilibrium solution and apply it to the newspaper business the solution incorporates changes in variability encountered due to promotional activity which extends the efficient frontier we also consider consequences for profit and goodwill costs of identifying an equilibrium solution when additional income is generated from a source outside of the supply chain such as advertising we generalise to the supply chain network where there is some knowledge of demand or supply distributions further up or down the supply chain we find that the primal dual formulation and equilibrium solution apply to interactions between components of supply chain networks and illustrate with the transition to the direct distribution of newspapers

electronic tickets smart cards and online prepayments when and how to advance sell advance selling occurs when sellers allow buyers to purchase at a time preceding consumption shugan and xie 2000 electronic tickets smart cards online prepayments and other technological advances make advance selling possible for many if not all service providers these technologies lower the cost of making complex transactions at a greater distance from the seller s site they also give sellers more control over advance selling by decreasing arbitrage as technology enhances the capability to advance sell more academic attention is vital this paper strives to exploit these technologies by developing advance selling strategies until recently advance selling research focused on the airline industry and specific characteristics of that industry these characteristics included the price insensitivity of late arrivals e g business travelers compared with early arrivals e g leisure travelers demand uncertainty across flights on the same day and capacity constraints recent findings by shugan and xie 2000 show that advance selling is a far more general marketing tool than previously thought it does not require these industry specific characteristics it only requires the existence of buyer uncertainty about future valuations moreover sellers without the ability to price discriminate can use advance selling to improve profits to the level of first degree price discrimination this finding is important because buyers are nearly always uncertain about their future valuations for most services e g the utility of next year s vacation or a future college education in this paper we take the next step from shugan and xie 2000 we show that advance selling profits do not come from buyer surplus but from more buyers being able to purchase we determine when and how to advance sell in a variety of situations including situations with limited capacity second period arrivals refunds buyer risk aversion exogenous credibility continuous preference distributions and premium pricing we determine when advance selling improves profits and when it does how to set advance prices we ask and answer seven questions first when should sellers advance sell second how much can advance selling improve profits compared with only spot selling third what factors impact the profitability of advance selling and how fourth should advance prices be higher or lower or the same as spot prices fifth how do capacity constraints impact advance selling strategies sixth should sellers limit the number of advance sales finally what is the possible impact of buyer risk aversion first we provide precise conditions when sellers should advance sell for example without capacity constraints we show that sellers should advance sell when marginal costs are sufficiently low to make it profitable to sell to buyers with low valuations and sufficiently high to convince buyers that the spot price will be higher than the advance price second we find that advance selling can almost double the profits from optimal spot selling to early arrivals we also show that advance selling has no impact on consumer surplus in markets with homogenous consumers and no capacity constraints therefore advance selling can increase social welfare because seller profits increase third we find that two very important factors impacting the profitability of advance selling are seller credibility and marginal costs buyers only advance buy when they expect an advantage from advance buying over spot buying without capacity constraints sellers must credibly convince buyers that the advance price is at a discount to the spot price we show that this condition is met under different circumstances for example large marginal costs can create credibility because buyers believe that these costs will lead to high spot prices fourth we find although optimal advance prices can be at a discount to the spot price that sometimes a premium is optimal premiums are optimal when capacity is large but limited and marginal costs are not too large buyers advance purchase at a premium to spot prices when capacity is limited and spot prices are low note that this is not a risk premium and risk aversion is not required no prior research has suggested this strategy because that research relies on the assumption that early arrivals are more price sensitive than later ones without that assumption premium advance pricing is sometimes optimal fifth we find that binding capacity constraints can impact the profitability of advance selling in opposite ways on one hand capacity constraints create seller credibility buyers believe that spot prices will be high when they know spot capacity is limited and perhaps more limited by advance sales on the other hand when capacity is limited the need to increase sales from discounted advance prices diminishes sixth consistent with desiraju and shugan 1999 we find that limiting advance sales can be profitable but only under restrictive conditions these conditions are 1 selling to all early arrivals would leave insufficient capacity in the spot period to sell to all second period arrivals with high valuations 2 the optimal spot price is high and 3 marginal costs are sufficiently small to make advance selling profitable finally we find that buyer risk aversion can sometimes increase the profitability of advance selling our findings provide precise guidelines for a large number of service providers that will have the technical capability to advance sell for those service providers advance selling provides a creative pricing strategy that can potentially provide substantial improvements in profits

information acquisition for capacity planning via pricing and advance selling when to stop and act this paper investigates a capacity planning strategy that collects commitments to purchase before the capacity decision and uses the acquired advance sales information to decide on the capacity in particular we study a profit maximization model in which a manufacturer collects advance sales information periodically prior to the regular sales season for a capacity decision customer demand is stochastic and price sensitive once the capacity is set the manufacturer produces and satisfies customer demand to the extent possible from the installed capacity during the regular sales period we study scenarios in which the advance sales and regular sales season prices are set exogenously and optimally for both scenarios we establish the optimality of a control band or a threshold policy that determines when to stop acquiring advance sales information and how much capacity to build we show that advance selling can improve the manufacturer s profit significantly we generate insights into how operating conditions such as the capacity building cost and market characteristics such as demand variability affect the value of information acquired through advance selling from this analysis we identify the conditions under which advance selling for capacity planning is most valuable finally we study the joint benefits of acquiring information for capacity planning through advance selling and revenue management of installed capacity through dynamic pricing

the component procurement problem for the loss averse manufacturer with spot purchase abstract this paper studies the purchasing behaviour of a loss averse engineer to order manufacturer who purchases a key component for his final product from a supplier under a single wholesale price contract with spot purchase opportunities where both the product demand and the component spot price are uncertain through newsvendor type of models we analyze several key issues including the effects of the manufacturer s loss aversion and the effects of demand and spot price uncertainties on the manufacturer s decision behaviour we find that the purchasing behaviour of the loss averse manufacturer differs from those of the risk neutral and risk averse ones specifically we identify some sufficient conditions under which the loss averse manufacturer may purchase a larger order quantity in advance when demand becomes more uncertain or when the price becomes more uncertain we also discuss the two wholesale price contract and show that fixing the emergency supply price may lead to a smaller order quantity

advance selling when consumers regret we characterize the effect of anticipated regret on consumer decisions and on firm profits and policies in an advance selling context where buyers have uncertain valuations advance purchases trigger action regret if valuations turn out to be lower than the price paid whereas delaying purchase may cause inaction regret from missing a discount or facing a stockout consumers whom we describe as emotionally rational act strategically in response to the firm s policies and in anticipation of regret in this context regret explains two types of behavioral patterns inertia delayed purchase and frenzies buying early at negative surplus we show how firms should optimally respond to consumer regret and also characterize a normative regret threshold above which they should not advance sell action regret reduces profits as well as the value of advance selling and booking limit policies for price setting firms inaction regret has the opposite effects these effects are diminished by capacity constraints and are reversed for firms facing price pressure in the advance period owing e g to competition or market heterogeneity regret heterogeneity explains premium advance selling for the capacity constrained firm which may benefit from larger shares of regretful buyers finally we show how the negative effects of regret on profits can be mitigated by regret priming marketing campaigns and by offering refunds or options or allowing resales our results highlight the importance of assessing the relative strength of regret within and across market segments and of accounting for these factors in pricing and marketing policies this paper was accepted by christian terwiesch operations management

the volume of trade in differentiated intermediate goods theory and evidence this paper develops a model of trade in differentiated intermediate goods and shows how the structure of the importing country s production will influence gross bilateral import volumes a regression equation directly implied by the model is estimated using disaggregated bilateral trade data for the oecd countries in 1985 the data reject the model a more general model suggested by the theory establishes strong links between a country s factor endowments and its gross trade volume this model is dominated statistically by a fixed effects model and does not substantially alter the conclusions of earlier empirical studies about openness to trade in manufactured goods copyright 1995 by mit press

supply chain choice on the internet internet companies extensively use the practice of drop shipping where the wholesaler stocks and owns the inventory and ships products directly to customers at retailers request under the drop shipping arrangement the supply chain benefits from risk pooling because the inventory for multiple retailers is stocked at the same location the wholesalers another more traditional channel alternative on the internet is one in which retailers stock and own the inventory these two supply chain structures which predominate on the internet result in different inventory risk allocation stocking decisions and profits for channel members moreover the two channel alternatives can be combined into a dual strategy whereby the retailer uses local inventory as a primary source and relies on drop shipping as a backup we model the dual strategy as a noncooperative game among the retailers and the wholesaler analyze it and obtain insights into the structural properties of the equilibrium solution to facilitate development of recommendations for practicing managers finally we characterize situations in which each of three channels is preferable by specifying appropriate ranges of critical parameters including demand variability the number of retailers in the channel wholesale prices and transportation costs

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

the statistical and economic role of jumps in continuous time interest rate models this paper analyzes the role of jumps in continuous time short rate models i first develop a test to detect jump induced misspecification and using treasury bill rates find evidence for the presence of jumps second i specify and estimate a nonparametric jump diffusion model results indicate that jumps play an important statistical role estimates of jump times and sizes indicate that unexpected news about the macroeconomy generates the jumps finally i investigate the pricing implications of jumps jumps generally have a minor impact on yields but they are important for pricing interest rate options