a dynamic model of brand choice when price and advertising signal product quality in this paper we develop a structural model of household behavior in an environment where there is uncertainty about brand attributes and both prices and advertising signal brand quality four quality signaling mechanisms are at work 1 price signals quality 2 advertising frequency signals quality 3 advertising content provides direct but noisy information about quality and 4 use experience provides direct but noisy information about quality we estimate our proposed model using scanner panel data on ketchup if price is important as a signal of brand quality then frequent price promotion may have the unintended consequence of reducing brand equity we use our estimated model to measure the importance of such effects our results imply that price is an important quality signaling mechanism and that frequent price cuts can have significant adverse effects on brand equity the role of advertising frequency in signaling quality is also significant but it is less quantitatively important than price in the printed version of marketing science vol 27 no 6 erdem et al 2008 was mistakenly identified as a research note it is a regular article and has been corrected here and in the online table of contents

an unintended consequence of book tax conformity a loss of earnings informativeness increasing the conformity between accounting earnings and taxable income has been proposed to improve financial reporting and curtail aggressive tax planning we find however that increasing conformity results in earnings that are less informative our inquiry exploits a unique sample of firms forced to change from the cash method to the accrual method for tax purposes thereby increasing their book tax conformity we find that these firms experienced a decrease in earnings informativeness compared to control firms unaffected by the change to our knowledge this is the first evidence of tax law changes affecting the informativeness of accounting earnings

the changing time series properties of earnings cash flows and accruals has financial reporting become more conservative abstract this paper documents changes in the patterns of earnings cash flows and accruals over the last four decades in the absence of a generally accepted definition of conservatism a number of measures of reporting conservatism are identified and examined these measures rely on the accumulation of nonoperating accruals the timeliness of earnings with respect to bad and good news characteristics of the earnings distribution and the market to book ratio the patterns are consistent with an increase in conservative financial reporting over time the findings have implications for accounting standard setting regulation of financial information and financial statement analysis

private v public antitrust enforcement a strategic analysis we compare private and public enforcement of the antitrust laws in a simple strategic model of antitrust violation and lawsuit the model highlights the tradeoff that private firms are initially more likely than the government to be informed about antitrust violations but are also more likely to use the antitrust laws strategically to the disadvantage of consumers assuming coupled private damages if the court is sufficiently accurate adding private enforcement to public enforcement always increases social welfare while if the court is less accurate it increases welfare only if the government is sufficiently inefficient in litigation pure private enforcement is never strictly optimal public enforcement can achieve the social optimum with a fee for public lawsuit that induces efficient information revelation private enforcement can also achieve the social optimum with private damages that are efficiently multiplied and decoupled

combining cartel penalties and private damage actions the impact on cartel prices abstract in many countries antitrust enforcement by competition authorities through prosecution and the imposition of penalties is complemented in price fixing cases by private damage actions which should affect both cartel deterrence and the prices set by those cartels that do form we show that the impact of combining penalties and damages on cartel prices is not clearcut and depends on both the nature of the penalty regime and the way that damages are calculated we demonstrate this by focusing on two ways of calculating damages that have been advocated in practice and two different forms of the widely used revenue based penalty regime when the simple form of revenue based penalties is in force the standard method of calculating damages worsens its harmful pricing effects whereas the proposed alternative method of calculating damages can overturn them when a more sophisticated form of revenue based penalties is in operation imposing damages will improve its beneficial pricing effects under both methods of damage calculation but the alternative method is more effective in all cases combining penalties and damages improves deterrence

a liquidity based model of security design we consider the problem of the design and sale of a security backed by specified assets given access to higher return investments the issuer has an incentive to raise capital by securitizing part of these assets at the time the security is issued the issuer s or underwriter s private information regarding the payoff of the security may cause illiquidity in the form of a downward sloping demand curve for the security the severity of this illiquidity depends upon the sensitivity of the value of the issued security to the issuer s private information thus the security design problem involves a tradeoff between the retention cost of holding cash flows not included in the security design and the liquidity cost of including the cash flows and making the security design more sensitive to the issuer s private information we characterize the optimal security design in several cases we also demonstrate circumstances under which standard debt is optimal and show that the riskiness of the debt is increasing in the issuer s retention costs for assets

how price promotions influence postpurchase consumption experience over time the current research examines how price promotions influence postpurchase hedonic consumption experience on the one hand getting a good deal can elevate moods and dampen the pain of payment thus enhancing consumption enjoyment on the other hand discounts also reduce sunk cost considerations and the need to recover one s spending as a result price promotions can lower attention during consumption which in turn diminishes consumption enjoyment the authors posit that the time delay between payment and consumption plays an important role in determining the relative strength of these competing effects four experiments involving real spending and consumption demonstrate that when consumption occurs immediately after payment discounts make consumption more enjoyable however this pattern reverses when consumption is delayed the experiments provide support for the roles of feelings and attention respectively in accounting for these effects while ruling out several alternative explanations including perceived quality absolute paid price and a direct sunk cost account

treble damage awards in private lawsuits for price fixing the traditional model for assessing the effects of treble damage pena lties on price fixing is reexamined and shown to yield surprising res ults unless the probability of detection is extremely sensitive to the price charged increasing the damage multiple will affect neither market efficiency nor expected distribution and will raise the mark et price copyright 1987 by university of chicago press

biases in valuation vs usage of innovative product features we investigate biases in product valuation and usage decisions that arise when consumers consider a new generation of a product that offers an expanded set of capabilities of uncertain value two experiments using a novel computer game show evidence of a valuation usage disparity participants display a high willingness to pay for a new version of the game that offers a new set of controls but fail to fully exercise the option to use these controls after purchase this discrepancy is attributed to a fundamental difference in how new capabilities are valued at the time of purchase versus use consumer usage decisions appear to be driven by such myopic concerns as a desire to avoid short term learning costs whereas purchase decisions often fail to take into account the factors that drive usage and are further inflated by global optimism in the future usefulness of new capabilities we show that this lack of foresight can be explained by an intertemporal judgment model in which consumers attempt to value

optimal dynamic scheduling policy for a make to stock production system this paper considers the dynamic scheduling problem of a single server make to stock queue with two products for the case of poisson demands and exponential production times we show that it is optimal to produce the product with the larger b index when it is backordered if the production times are identically distributed the optimal policy can further be characterized by monotone switching curves we also prove that a base stock policy coupled with a switching curve is optimal for some initial inventory levels a simple linear switching rule for determining production priority is proposed and compared with other heuristic policies in a computational experiment

executive incentives and the horizon problem an empirical investigation abstract this paper investigates the hypothesis that ceos in their final years of office manage discretionary investment expenditures to improve short term earnings performance we examine the behavior of r d expenditures for a sample of firms in industries that have significant ongoing r d activities the results suggest that ceos spend less on r d during their final years in office however we find the reductions in r d expenditures are mitigated through ceo stock ownership there is no evidence that the reduced r d expenditures are associated with either poor firm performance or reductions in investment expenditures that are capitalized for accounting purposes

competitive strategies for late entry into a market with a dominant brand this paper considers optimal positioning advertising and pricing strategies for a firm contemplating entry in a market dominated by an entrenched competitor drawing on behavioral research on consumer preference formation we develop an individual level model that reflects differing consumer responses to similar products offered by the dominant brand and later entrants an effect we term asymmetric preferences from the resulting aggregate market response model we derive several competitive implications notably 1 that preference asymmetry can make a differentiated late entry strategy optimal even if preferences would appear to dictate otherwise and 2 that me too strategies are not equilibrium late entry strategies more generally our analysis suggests that preference asymmetry can contribute to the persistent competitive advantage of dominant brands

the contracting benefits of accounting conservatism to lenders and borrowers abstract this paper examines the ex post and ex ante benefits of accounting conservatism to lenders and borrowers in the debt contracting process i expect conservatism to benefit lenders ex post through the timely signaling of default risk as manifested by accelerated covenant violations and to benefit borrowers ex ante through lower initial interest rates consistent with these predictions i find that more conservative borrowers are more likely to violate debt covenants following a negative price shock and that lenders offer lower interest rates to more conservative borrowers

earnings quality in uk private firms comparative loss recognition timeliness abstract uk private and public companies face substantially equivalent regulation on auditing accounting standards and taxes we hypothesize that private company financial reporting nevertheless is of lower quality due to different market demand regulation notwithstanding a large uk sample supports this hypothesis quality is operationalized using basu s 1997 time series measure of timely loss recognition and a new accruals based method the result is not affected by controls for size leverage industry membership and auditor size or by allowing endogenous listing choice the result enhances understanding of private companies which are predominant in the economy it also provides insight into the economics of accounting standards

price and delay competition between two service providers abstract in this paper we study situations in which two firms offer identical service for possibly different prices and response times customers choice between firms is based on their full price which includes the service fee plus expected waiting costs we consider a two level game the first game is a non cooperative game among customers who observe the prices but not the queue sizes and then decide if to give up the service balk or to join a queue in the latter case they need to decide which service provider to seek service from the second game is played between the firms who choose what prices to charge in making their price selections firms take into consideration the game played among customers the new assumption here in contrast with existing literature is that customers belong to one of two classes each of which is characterized by a waiting cost parameter for this model we propose a procedure for solving the former game analytically and the latter numerically various special cases are encountered such as asymmetric price equilibria continuum price equilibria and cases in which demand for service increases with the service fee

the impact of utility balance and endogeneity in conjoint analysis adaptive metric utility balance is at the heart of one of the most widely used and studied methods for conjoint analysis we use formal models simulations and empirical data to suggest that adaptive metric utility balance leads to partworth estimates that are relatively biased smaller partworths are upwardly biased relative to larger partworths such relative biases could lead to erroneous managerial decisions metric utility balanced questions are also more likely to be inefficient and in one empirical example contrary to popular wisdom lead to response errors that are at least as large as nonadaptive orthogonal questions we demonstrate that this bias is because of endogeneity caused by a winner s curse shrinkage estimates do not mitigate these biases combined with adaptive metric utility balance shrinkage estimates of heterogeneous partworths are biased downward relative to homogeneous partworths although biases can affect managerial decisions our data suggest that empirically biases and inefficiencies are of the order of response errors we examine viable alternatives to metric utility balance that researchers can use without biases or inefficiencies to retain the desired properties of 1 individual level adaptation and 2 challenging questions

reservation price as a range an incentive compatible measurement approach abstract drawing from the literature on buyers uncertainty in preference and product knowledge the authors suggest and empirically test the proposition that a consumer s reservation price for a product is more meaningfully and accurately represented as a range than as a single point given this conceptualization they propose an approach for incentive compatible elicitation of a consumer s reservation price range icerange that builds on becker degroot and marschak s 1964 point of purchase method two empirical applications of the approach provide an assessment of its practicality and its predictive performance relative to current methodologies for reservation price elicitation the results demonstrate that the proposed method significantly outperforms the benchmark approaches in terms of predictive validity and yields valuable incremental information about uncertainty in product valuation

the asymmetric effect of discount retraction on subsequent choice this article examines the subsequent impact of a temporary price discount on brand preference after the promotion is retracted theorizing that price salience has an impact on price sensitivity we propose that the effects of retracting a discount depend on the promoted brand s regular price quality positioning in a first experiment in which we track consumer choices across a sequence of choice occasions we show that retracting a discount posted by a higher quality higher price brand is detrimental to that brand in contrast a discount posted by a lower quality lower price brand is capable of enduringly diverting consumers away from high end brands a second experiment relies on process measures to provide evidence for the underlying price salience mechanism a third experiment tests our hypotheses with real incentives and offers additional support for our price salience theory by testing its most peculiar behavioral implication

integration of pricing and capacity allocation for perishable products abstract for years pricing and capacity allocation decisions in most revenue management models have been carried out independently this article presents a comprehensive model to integrate these two decisions for perishable products we assume that the supplier sells the same products to different micro markets at distinct prices throughout the sales season the supplier faces decisions as to which micro markets or customer classes should be served and at what prices we show that i at any time a customer class is active being served if and only if the price offered is over a threshold level but the optimal price may not be the highest one of the supplier s choice ii when the price decision is made in conjunction with inventory it is similar to the procedure shown in pure pricing models i e the optimal price comes from a subset of prices that forms a maximum increasing concave envelope iii because of dynamic changes in the optimal prices the nested price structure does not necessarily hold in general and needs to be redefined and iv the optimal pricing and capacity control policy is based on a sequence of threshold points that incorporate inventory price and demand intensity numerical examples are provided

an innovative approach for strategic capacity portfolio planning under uncertainties abstract this research studies multi generation capacity portfolio planning problems under various uncertainty factors these uncertainty factors include price uncertainties demand fluctuation and uncertain product life cycle the objective of this research is to develop an efficient algorithm that generates capacity portfolio policies robust to aforementioned uncertainties we model this capacity portfolio planning problem using markov decision processes mdp in this mdp model we consider two generation of manufacturing technology the new generation capacity serves as a flexible resource that can be used to downward fulfill the deficiency of old generation capacity the objective of this mdp model is to maximize the expected profit under uncertainties an efficient algorithm is proposed to solve the problem and provide an optimal capacity expansion policy for both types of capacity moreover we show that the optimal capacity expansion policy can be characterized by a monotone structure we verify our results by detail simulation study

optimal cartel pricing in the presence of an antitrust authority the dynamic behavior of a price fixing cartel is explored when it is concerned about creating suspicions that a cartel has formed consistent with preceding static theories the cartel s steady state price is decreasing in the damage multiple and the probability of detection however contrary to those theories it is independent of the level of fixed fines it is also shown that the cartel prices higher when a more competitive benchmark price is used in calculating damages

third degree price discrimination in the presence of congestion externality this paper analyzes third degree price discrimination of a monopoly airline in the presence of congestion externality when all markets are served the model features the business passenger and leisure passenger markets where business passengers exhibit a higher time valuation and a less price elastic demand than leisure passengers our main result is the identification of the time valuation effect of price discrimination which can work in the opposite direction as the well known output effect on welfare this time valuation effect clearly explains why discriminating prices can improve welfare even when this is associated with a reduction in aggregate output

how much does the market value an improvement in a product attribute a firm contemplating improvements to its product attributes would be interested in the dollar value the market attaches to any potential product modification in this paper we derive a measure of market value such that the comparison of the measure against the incremental unit cost of the attribute improvement is key in deciding whether or not the attribute improvement is profitable competition from other brands the potential for market expansion and heterogeneity in customer preference structures are explicitly modeled using the multinomial logit framework the analysis yields a closed form expression for the market s value for an attribute improvement mvai a key result we obtain is that customers should be differentially weighted based on their probability of purchasing the firm s product in particular customers who exhibit a very high or very low probability of choosing the firm s product should receive less weight in detemining mvai because the probability of choice varies across products the answer to the question of how much the market values an improvement depends on which firm is asking the question it is shown that customers whose utilities have a greater random component should be weighted less furthermore the measure developed is robust to the influence of outliers in the sample an empirical illustration of the mvai measure in the context of a new product development study is provided the study illustrates the advantages of the proposed measure over currently used approaches and explores the possibility of competitive price reactions

earnings quality research advances challenges and future research abstract this discussion makes several observations regarding the earnings quality research reviewed in dechow ge and schrand 2010 dgs i discuss some of the factors that led to the large growth in the earnings quality literature over the past two decades and note a few of the important contributions from this literature i also present what i view as several major challenges the literature faces as well as some avenues for future research in addition i discuss the difficulties in evaluating such a diverse body of literature and comment on dgs s major conclusions

what the seller won t tell you persuasion and disclosure in markets imagine that you are considering an investment in a new public offering of a firm s shares the firm s officers make a presentation that includes an audited financial statement an earnings forecast reviewed by its prestigious investment bankers and an impressive demonstration of its new technology or suppose that you are buying a new furnace to replace an old one that is not working well the salesman displays a chart showing that the projected total life cycle cost of one particular model including capital costs and fuel usage over the projected lifetime of the furnace is lower than that of some competing models you have considered this paper reviews the theoretical arguments about how sellers disclose information in an attempt to encourage buyers and the potential role for regulation in encouraging efficient disclosure of information how well does a system of private reporting work when should we expect all the relevant information to be reported if testing and reporting by the seller are costly will too little testing and reporting be done or too much when some information is withheld what sort of information is withheld how do rational buyers respond to such withholding how are prices and welfare affected what role is there for laws and regulations to improve the functioning of markets we address these questions by studying the theory of persuasion games games in which one or more sellers provide verifiable information to buyers to influence the actions they take

incentive compatibility in signaling games with a continuum of types on donne deux resultats utiles pour demontrer l existence et pour caracteriser des equilibres de separation dans des jeux de signalement

debt covenant violation and manipulation of accruals abstract this paper examines the abnormal accruals of a sample of 94 firms that reported debt covenant violations in annual reports we expect debt covenant restrictions to influence accounting choices in the year preceding and the year of violation time series and cross sectional models are used to estimate normal accruals in the year prior to violation both models indicate that abnormal total and working capital accruals are significantly positive in the year of violation there is evidence of positive abnormal working capital accruals after controlling for management changes and auditor going concern qualifications

news management and the value of firms the literature on asymmetric information has been concerned mainly with the problem of the informed party lying to the uninformed parties however in many cases the informed party will stop short of lying but will seek to gain from private information by managing the disclosure of news this article examines the pricing of a firm when there is such manipulation of news i model this situation as a variant of the persuasion game of milgrom and roberts 1986 in which i can parameterize the notion of the degree of credence placed by the market on the disclosures of the informed party an empirical hypothesis thrown up by the theory is that for otherwise identical firms a low price earnings ratio will be associated with a greater degree of positive skewness of the disclosure strategy

selective disclosures in the presence of uncertainty about information endowment abstract this paper analyzes a setting where firms could have private information from various sources and disclose a selective subset of that information investors have uncertainty about how much information firms have using a stylized model where there are two signals about a firm s future value and the firm may be privately informed of none one or all of those signals this paper establishes an equilibrium link between the cutoff value characterizing the partially informed firm s disclosure strategy and the partition of the signal space characterizing the fully informed firm s disclosure strategy the paper also discusses potential extensions of the model

do ethical values work a quantitative study of the impact of fair trade coffee on consumer behavior this study investigates the large french fair trade ft market and the importance of ft coffee within it in an attempt to identify some general features of ft consumers on the basis of 7 587 transactions the authors also determine the impact of ft characteristics on customer behavior the main result is somewhat surprising ft coffee purchases seem to involve a temporary commitment as ft coffee consumers appear less loyal than traditional coffee consumers the authors derive some business and academic implications

revenue management approach to stochastic capacity allocation problem abstract to formulate stochastic capacity allocation problems in a manufacturing system the concept and techniques of revenue management is applied in this research it is assumed the production capacity is stochastic and hence its exact size cannot be forecasted in advance at the time of planning there are two classes of frequent and occasional customers demanding this capacity the price rate as well as the penalty for order cancellation caused by overbooking is different for each class the model is developed mathematically and we propose an analytical solution method the properties of the optimal solution as well as the behavior of objective function are also analyzed the objective function is not concave in general however we prove it is a unimodal function and by taking advantage of this property the optimal solution is determined

the price precision effect evidence from laboratory and market data we examine two questions does the roundness or precision of prices bias magnitude judgments if so do these biased judgments affect buyer behavior results from five studies suggest that buyers underestimate the magnitudes of precise prices we term this the precision effect the first three studies are laboratory experiments designed to test the existence of the precision effect and examine the underlying psychological processes in study 1 we find that precise prices are judged to be smaller than round prices of similar magnitudes for example participants in this experiment incorrectly judged 395 425 to be smaller than 395 000 in study 2 we show that precision is more likely to affect magnitude judgments under conditions of uncertainty study 3 demonstrates that manipulating prior experience with the pattern of roundness and precision in numbers can moderate the precision effect studies 4 and 5 examine whether the precision effect influences buyers willingness to pay for negotiated purchases e g houses in study 4 we conduct an experiment on a nationally representative sample of homeowners to demonstrate that participants are willing to pay more for houses when the sellers use precise e g 364 578 instead of comparable round e g 365 000 prices in study 5 we analyze data from residential real estate transactions in two separate markets and find that buyers pay higher sale prices when list prices are more precise these empirical results enrich our understanding of the psychological processes that underlie price magnitude judgments and have substantive implications for buyer and seller behavior

discussion of trials of legal disputes involving independent auditors some empirical evidence the objectives of the paper are to provide descriptive data related to trial outcomes involving auditors and to interpret the trial outcomes using an analytical model provided by priest and klein henceforth p k 1984 summarized in appendix a of the paper the p k analysis has considerable intuitive appeal and has been heavily cited in the legal economics literature however it also has drawbacks which limit its usefulness first the p k analysis relies on numerous simplifying assumptions which may not adequately capture essential features of auditor litigation second other analytical studies utilizing different assumptions yield different inferences third the

estimation and empirical properties of a firm year measure of accounting conservatism we estimate a firm year measure of accounting conservatism examine its empirical properties as a metric and illustrate applications by testing new hypotheses that shed further light on the nature and effects of conservatism the results are consistent with the measure c score capturing variation in conservatism and also predicting asymmetric earnings timeliness at horizons of up to 3 years ahead cross sectional hypothesis tests suggest firms with longer investment cycles higher idiosyncratic uncertainty and higher information asymmetry have higher accounting conservatism event studies suggest increased conservatism is a response to increases in information asymmetry and idiosyncratic uncertainty

debt covenant violations and managers accounting responses abstract this paper examines accounting changes costs of default and accounting based covenants violated by 130 firms reporting violations in annual reports i find that managers of firms approaching default respond with income increasing accounting changes and that the default costs imposed by lenders and the accounting flexibility available to managers are important determinants of managers accounting responses i also document that private lending agreements are the first violated that net worth and working capital restrictions are the most frequently violated restrictions and that in 52 percent of the cases lenders require concessions from borrowers to resolve default

optimal antitrust enforcement competitor suits entry and post entry competition abstract we consider the effect of competitor suits in a model in which an incumbent can take an action that deters the entry of a rival the option to sue the incumbent can provide a subsidy for entry which can maintain competition even when the incumbent takes this action liability for the entrant s lost profits however can soften post entry competition if the incumbent s action is potentially efficient taking market structure as given e g it reduces her costs then competitor suits can generate some post entry competition without deterring this efficient cost reduction if the incumbent s action is inefficient e g it increases the rival s costs but does not reduce the incumbent s costs then competitor suits even with maximal antitrust liability cannot deter the incumbent from increasing the rival s costs by at least a small amount thus the paper suggests that while competitor suits have advantages for efficient actions that deter efficient entry they do not work well for inefficient actions that deter entry

design and evaluation of a dynamic capacity apportionment procedure abstract deploying a decision theory based approach we develop a heuristic for short term constrained capacity allocation to multiple product classes in make to order manufacturing attempting to maximize profit by discriminating between product classes efficacy of the heuristic is evaluated by comparing its performance to a base case and an upper bound under a wide variety of operational conditions such as variations in profit attractiveness capacity tightness customer order size structure customer order rate structure and demand coefficient of variation considering three different scenarios of time variant order rate of products the results indicate that the heuristic is effective in obtaining increased profit when capacity is very tight and products are well differentiated on average it yields an increase of 9 38 in total profit with a concomitant decrease of 0 85 in capacity utilization the results of this study serve to highlight the value of proactively seeking to differentiate products particularly when demand exceeds capacity

opaque financial reports r2 and crash risk abstract we investigate the relation between the transparency of financial statements and the distribution of stock returns using earnings management as a measure of opacity we find that opacity is associated with higher r2s indicating less revelation of firm specific information moreover opaque firms are more prone to stock price crashes consistent with the prediction of the jin and myers 2006 r2 around the world new theory and new tests journal of financial economics 79 257 292 model however these relations seem to have dissipated since the passage of the sarbanes oxley act suggesting that earnings management has decreased or that firms can hide less information in the new regulatory environment

price as a stimulus to think the case for willful overpricing consumers aware of a new benefit will often experience uncertainty about its personal relevance or usage value this paper shows that the decision to deliberate further to resolve this uncertainty and reach a polarized judgment of personal relevance critically depends on the posted price in particular a price above the consumer s initial willingness to pay might be thought provoking and enhance the perception of relevance with a certain probability this behavioral mechanism is introduced formally and by way of an experiment with reference to the purchase of organic lettuce and fair trade coffee accounting for the effect of price as a stimulus to think a monopolistic firm should either over price transgressive pricing or under price regressive pricing in comparison to the consumer s willingness to pay under certain circumstances the firm should also empower consumers with means that reduce the effort of deliberation

stock rationing in an m ek 1 make to stock queue this paper considers the stock rationing problem of a single item make to stock production system with several demand classes and lost sales when demand is poisson and processing time has an erlang distribution we show that a single state variable called work storage level can be employed to completely capture the information regarding inventory level and the status of current production the optimal rationing policy can be characterized by a sequence of monotone critical work storage levels for each demand class there exists a work storage level at or below which it is optimal to start rejecting the demand of this class in anticipation of future arrival of higher priority demands the optimal production policy can also be characterized by a critical work storage level our numerical examples indicate that a critical stock level policy which ignores information on the status of current production performs very well

optimal disclosure decisions when there are penalties for nondisclosure we study a seller of an asset who is liable for damages if the seller fails to disclose to buyers an estimate of the asset s value he knew prior to the sale our results include as either the damages multiplier that determines the size of the damages the seller must pay buyers increases or as the probability the seller is caught withholding his estimate from buyers increases the seller discloses his estimate less often and as the precision of the seller s estimate increases he sells a larger fraction of the asset

are treble damages neutral sequential equilibrium and private antitrust enforcement a sequential equilibrium model of private antitrust enforcement is presented consumers have incomplete information about cartel costs and cannot accurately estimate a priori the damage recovery from an antitrust action consumers are able to infer cartel costs from the equilibrium pricing strategy of firms the universal divinity criterion is used to characterize the sequential equilibrium it is shown that for a sufficiently large damage multiple antitrust enforcement effectively increases social welfare copyright 1990 by american economic association

the role of inventory in delivery time competition the paper operationalizes the notion of shortage cost by considering the behavior of customers and competing firms and examines the role of inventory in response time competition we start with a single firm production control model in which customers are characterized by their preferences of price quality and delivery time the optimal production inventory policy and the optimal choice between make to order and make to stock operations are determined in simple newsboy like formulas the basic model is then extended to an n firm market game in which firms compete for orders from the aspect of early delivery one could think of this setting as an oligopoly racing market the analysis shows that competition can breed a demand for produce to stock just as other economic phenomena such as economies of scale uncertainty or seasonality can induce make to stock and that delivery time competition increases the buyer s welfare while decreasing the producer s welfare

product variety and endogenous pricing with evaluation costs one important decision firms must make is to select the product line characteristics and number of products to offer consumers this paper explores the effect of the interaction between consumer evaluation costs and pricing on the optimal product line length to offer consumers before deciding to buy a product among all products offered a consumer learns the product line length given the product line length a consumer decides whether to evaluate the products available and their prices this decision to evaluate depends on the expected consumer surplus after the evaluation being greater than the evaluation costs when the firm offers few products the firm may not attract many consumers because of lack of product fit and may be forced to offer low prices when the firm offers many products all consumers will find a great product fit that is the variance of consumer valuations per product chosen is lower this allows the firm to charge high prices to extract ex post consumer surplus resulting in lower ex ante expected consumer surplus which may lead consumers not to evaluate the products in the first place that is by offering fewer products a firm can commit not to extract all possible consumer surplus these two forces may then lead to the existence of an interior optimal number of products to offer the optimal number of products offered is decreasing in the evaluation costs

dynamic models incorporating individual heterogeneity utility evolution in conjoint analysis it has been shown in the behavioral decision making marketing research and psychometric literature that the structure underlying preferences can change during the administration of repeated measurements e g conjoint analysis and data collection because of effects from learning fatigue boredom and so on in this research note we propose a new class of hierarchical dynamic bayesian models for capturing such dynamic effects in conjoint applications which extend the standard hierarchical bayesian random effects and existing dynamic bayesian models by allowing for individual level heterogeneity around an aggregate dynamic trend using simulated conjoint data we explore the performance of these new dynamic models incorporating individual level heterogeneity across a number of possible types of dynamic effects and demonstrate the derived benefits versus static models in addition we introduce the idea of an unbiased dynamic estimate and demonstrate that using a counterbalanced design is important from an estimation perspective when parameter dynamics are present

pricing production scheduling and delivery time competition this paper studies competition between firms that produce goods or services for customers sensitive to delay time firms compete by setting prices and production rates for each type of customer and by choosing scheduling policies the existence of a competitive equilibrium is proved the competitive equilibrium is well defined whether or not a firm can differentiate between customers based upon physical characteristics because each customer has incentive to truthfully reveal its delay cost further insights are derived in two special cases a unique equilibrium exists for each of the cases in the first case firms are differentiated by cost mean processing time and processing time variability but customers are homogeneous the conclusions include that a faster lower variability and lower cost firm always has a larger market share higher capacity utilization and higher profits however this firm may have higher prices and faster delivery time or lower prices and longer delivery time in the second

modeling choice strategies for noncomparable alternatives theoretical models are developed for two strategies consumers use to choose among noncomparable alternatives the models view consumers as trading off decision error and processing effort when selecting a decision strategy the models predict the use of choice strategies and implicit abstraction processes for noncomparable alternatives in a number of different circumstances

consumer deliberation and product line design this paper studies optimal product line design when consumers need to incur costly deliberation to uncover their valuations for quality to induce deliberation a firm must maintain quality dispersion and cut the price of the high end product so that consumers are motivated to deliberate in the hope that high end consumption fits their needs to prevent deliberation the firm may have to offer downgraded quality at a low price so that an impulsive purchase will not appear too wasteful whether the firm should induce deliberation depends on how much surplus it creates by aligning the supply of quality with heterogeneous demand for quality and how much surplus it captures during this process interestingly equilibrium firm profit consumer surplus and social welfare can all increase with the cost of deliberation we extend the model to accommodate consumers heterogeneous prior beliefs of their valuations for quality we also discuss how market research could benefit from taking into account the endogeneity of consumer deliberation

the inverse newsvendor problem choosing an optimal demand portfolio for capacitated resources the classical newsvendor problem is one of optimally choosing a level of capacity to respond to a known demand distribution the inverse newsvendor problem is one of optimally choosing a demand distribution with fixed capacity the applications of the inverse problem include industrial settings where demand management is relatively less costly than capacity adjustments demand distributions are chosen from an opportunity set which reflects the set of market opportunities for the firm we analyze the firm s profit as a function of these demand alternatives provide solution methods and insights and identify inefficient and dominated distributions we provide results when the opportunity set is known or only partially known we extend the results to cases in which there are multiple prioritized customer classes that share the firm s productive capacity this paper was motivated by an industrial application in a firm selling a semicommodity product into three prioritized industrial sectors we review the application of our methods to this setting

measuring consumers willingness to pay at the point of purchase abstract economists psychologists and marketing researchers rely on measures of consumers willingness to pay wtp in estimating demand for private and public goods and in designing optimal price schedules existing market research techniques for measuring wtp differ in whether they provide an incentive to consumers to reveal their true wtp and in whether they simulate actual point of purchase contexts the authors present an empirical comparison of several procedures for eliciting wtp that are applicable directly at the point of purchase in particular the authors test the applicability of becker degroot and marschak s 1964 well known incentive compatible procedure for assessing the utility of lotteries to measuring consumers wtp in three studies the authors explore the reliability validity and feasibility of the procedure and show that it yields lower wtp estimates than do non incentive compatible methods such as open ended and double bounded contingent valuation they show experimentally t

the effect of price on preference consistency over time construal level theory indicates that consumers tend to prefer products high in desirability greater functionality for distant future decisions but switch their preferences toward products high in feasibility greater usage convenience for near future decisions the current research demonstrates that price information traditionally considered as a feasibility cue can increase consumers near future preference toward products with greater functionality despite their low convenience leading to preference consistency over time as the underlying mechanism price information increases the functionality importance for near future decisions due to consumers enhanced value seeking tendency when seeing price and their lay belief that greater functionality represents higher value further when consumers are led to believe that greater convenience represents higher value price and the value seeking tendency result in a greater preference toward easy to use products for the distant future and lead to preference consistency across time as well theoretical implications are discussed

inventory rationing in a make to stock production system with several demand classes and lost sales this paper considers the stock rationing problem of a single item make to stock production system with several demand classes and lost sales for the case of poisson demands and exponential production times we show that the optimal policy can be characterized by a sequence of monotone stock rationing levels for each demand class there exists a stock rationing level at or below which it is optimal to start rejecting the demand of this class in anticipation of future arrival of higher priority demands a simple queueing model is analyzed to compute the operating cost of a rationing policy in a numerical study we compare the optimal rationing policy with a first come first served policy to investigate the benefit of stock rationing under different operating conditions of the system

the implications of unverifiable fair value accounting evidence from the political economy of goodwill accounting abstract i study the evolution of sfas 142 which uses unverifiable fair value estimates to account for acquired goodwill i find evidence consistent with the fasb issuing sfas 142 in response to political pressure over its proposal to abolish pooling accounting the result is interesting given this proposal was due in part to sec concerns over pooling misuse i also find evidence consistent with lobbying support for sfas 142 increasing in firms discretion under the standard agency theory predicts such unverifiable discretion can be used opportunistically

cartel pricing dynamics with cost variability and endogenous buyer detection this paper characterizes collusive pricing patterns when buyers may detect the presence of a cartel buyers are assumed to become suspicious when observed prices are anomalous we find that the cartel price path is comprised of two phases during the transitional phase price is generally rising and relatively unresponsive to cost shocks during the stationary phase price responds to cost but is much less sensitive than under non collusion or simple monopoly the length of the transition phase is decreasing in the variance of cost shocks it is also shown that the cartel price path may overshoot its long run level so that price converges from above

pricing in revenue management for multiple firms competing for customers abstract we consider the pricing strategies of multiple firms providing the same service in competition for a common pool of customers in a revenue management context the firms have finite capacity and the demand at each firm depends on the selling prices charged by all firms each of which satisfies demand up to a given capacity limit we use game theory to analyze the systems when firms face either a deterministic demand or a general stochastic demand the existence and uniqueness conditions of a nash equilibrium are derived and we calculate the explicit nash equilibrium point when the demand at each firm is a linear function of price we also conduct sensitivity analysis of the equilibrium prices with respect to cost and capacity parameters

price and advertising signals of product quality we present a signaling model based on ideas of phillip nelson in which both the introductory price and the level of directly uninformative advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in our model a second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

earnings management to avoid earnings decreases and losses this paper provides evidence that firms manage reported earnings to avoid earnings decreases and losses specifically in cross sectional distributions of earnings changes and earnings we lind unusually low frequencies of small decreases in earnings and small losscs and unusually high frequencies of small increases in earnings and small positive income we find evidence that two components of earnings cash flow from operations and changes in working capital are used to achieve increases in earnings we present two theories based on stakeholder use of information processing heuristics and prospect theory about the motivation for avoidance of earnings decreases and losses

managing capacity in tightly constrained systems abstract many make to order firms face total expected demand in excess of available capacity this is particularly true in the short range for capital intensive firms such as those in the flow process industry firms making short life cycle products such as those in high fashion apparel industry and printing shops in such situations the manager is left with the difficult task of allocating the available capacity between competing classes of products and or customers at the same time the manager is faced with the challenge of achieving delivery dependability and speed in order to stay competitive in this paper i describe the problem contrast it with a class of problems known as perishable asset revenue management problems review recent literature that presents alternative approaches for managing capacity such as capacity rationing improved coordination mechanisms and subcontracting and discuss fruitful avenues for future research

willingness to pay estimation with choice based conjoint analysis addressing extreme response behavior with individually adapted designs the increasing consideration of behavioral aspects in operations management models has prompted greater use of choice based conjoint cbc studies in operations research such studies can elicit consumers willingness to pay wtp a core input for many optimization models however optimization models can yield valid results only if consumers wtp is estimated accurately a simulation study and two field studies show that extreme response behavior in cbc studies such that consumers always or never choose the no purchase option harms the validity of wtp estimates reporting the share of consumers who always and never select the no purchase option allows for detecting extreme response behavior this study suggests an individually adapted design that avoids extreme response behavior and thus significantly improves wtp estimation accuracy

the discriminating consumer product proliferation and willingness to pay for quality abstract the authors propose that a crowded product space motivates consumers to better discriminate between options of different quality specifically this article reports evidence from three controlled experiments and one natural experiment that people are prepared to pay more for high quality products and less for low quality products when they are considered in the context of a dense as opposed to a sparse set of alternatives to explain this effect the authors argue that consumers uncertain about the importance of quality learn from observing market outcomes product proliferation reveals that other consumers care to discriminate among similar alternatives and in turn this inference raises the importance of quality in decision making

the role of accounting quality in the m a market we examine the role of target firms accounting quality in the merger and acquisition process we predict that target firm accounting quality will be positively associated with 1 the likelihood that the deal will be structured as a negotiation rather than as an auction 2 the speed with which the deal reaches final resolution and 3 the likelihood that the proposed deal is ultimately completed our empirical evidence is consistent with these predictions these results complement and extend existing findings on target firm accounting quality and provide new evidence that financial accounting quality relates positively to the efficient allocation of the economy s capital resources this paper was accepted by mary barth accounting

understanding the relation between accruals and volatility a real options based investment approach abstract accruals are fundamental to financial reporting and are the underlying innovation of accounting despite this accounting research has provided little understanding of how economic forces affect a firm s level of accruals and limited guidance for forming expectations of accruals based on ex ante firm characteristics we consider accruals as a form of investment and examine whether theoretical predictions from a real options based investment framework provide insight into the relation between accruals and the ex ante expected volatility faced by the firm specifically the theory predicts that higher volatility dampens investment because firms prefer to wait and see instead of investing immediately consistent with this theory we document a robust negative relation between year ahead net working capital accruals and expected volatility we also predict and find that the negative association between year ahead net working capital accruals and expected volatility is less pronounced for distressed firms and more pronounced for firms with a longer operating cycle and that current asset accruals are more sensitive to volatility than current liability accruals finally we find that the residuals from an investment based expected accrual model outperform those from the widely used performance adjusted modified jones model in identifying companies that just meet or beat analysts earnings forecasts collectively our findings suggest that the investment perspective of accruals and in particular the real options based investment framework provide useful insights for forming expectations of accruals

relying on the information of interested parties we investigate the conventional wisdom that competition among interested parties attempting to influence a decisionmaker by providing verifiable information elicits all relevant information we find that if the decisionmaker is strategically sophisticated and well informed about the relevant variables and about the preferences of the interested party or parties competition may be unnecessary to achieve this result if the decisionmaker is unsophisticated or not well informed competition is not generally sufficient if the interested parties interests are sufficiently opposed however or if the decisionmaker is seeking to advance the parties welfare then competition can reduce or even eliminate the decisionmaker s need for prior knowledge about the relevant variables and for strategic sophistication in other settings only the combination of competition among information providers and a sophisticated skepticism is sufficient to allow effective decisionmaking