buyer initiated vs seller initiated information revelation sales presentations are the core of the selling process where salespeople provide information to prospects one challenge is that the amount of information available to be potentially communicated may exceed salespeople s ability to communicate or customers ability to process there is limited bandwidth between the firm and customers one important decision then is which information should customers see what the firm chooses to tell customers may be informative in itself when constrained to a seller initiated information revelation format where the firm chooses which feature to show the firm never finds it optimal to offer more features than it is able to inform customers about consequently customers never find credible a claim that the product has all features the important implication is that price alone cannot serve as a signal of quality in this setting in contrast a buyer initiated information revelation format where customers decide which information to receive increases the probability of a sale and also results in the production of higher quality products in a competitive setting by adopting buyer initiated information revelation firms are able to attain positive profits this is due to the fact that customers infer the product s quality from the price along with the information revelation format customers know that at some prices firms find it profitable to produce high quality products and at other lower prices this is not the case thus customer empowerment leads to higher profits

proper risk aversion on introduit et on etudie une condition comportementale significative sur les fonctions d utilite pour les richesses qui signifie qu une loterie indesirable ne peut jamais etre rendue desirable par la presence d une loterie indesirable independante

standard risk aversion this paper introduces the concept of standard risk aversion a von neumann morgenstern utility function has standard risk aversion if any risk makes a small reduction in wealth more painful in the sense of an increased reduction in expected utility also makes any undesirable independent risk more painful it is shown that given monotonicity and concavity the combination of decreasing absolute risk aversion and decreasing absolute prudence is necessary and sufficient for standard risk aversion standard risk aversion is shown to imply not only pratt and zeckhauser s proper risk aversion individually undesirable independent risks always being jointly undesirable but also that being forced to face an undesirable risk reduces the optimal investment in a risky security with and independent return similar results are established for the effect of broad class of increases in one risk on the desirability of or optimal investment in a second independent risk

the role of brand image and product characteristics on firms entry and oem decisions we investigate the optimal market entry and original equipment manufacturer oem decisions of a firm facing a market in which firms brands can be horizontally differentiated and products can be vertically differentiated the entrant might sell under its own brand and compete with an incumbent become a supplier to the incumbent or both findings reveal that when consumers perceive the firms are horizontally and vertically differentiated the entrant profits by simultaneously entering the market and establishing an oem arrangement with the incumbent in such competitive scenarios both buyer and seller increase profits by agreeing on wholesale prices that are not too low which softens both horizontal and vertical conflict between the firms findings also show that the incumbent may prefer to pay high wholesale prices to the entrant even if the incumbent had the option to source the product independently at a lower marginal cost when firms have the capability of producing each other s product lines su

do the electronic books reinforce the dynamics of book supply chain market a theoretical analysis abstract in this paper we develop a set of mathematical models to examine and compare different pricing and launch strategies of electronic books e books under two types of copyright arrangements namely the royalty and buyout arrangements we conduct a sensitivity analysis to assess how various market structure parameters influence the publisher s pricing options in different copyright launch modes and channels of distribution aimed at gaining managerial insights into the complex issues in pricing and launch strategies involving e books we recommend optimal launch strategies and pricing decisions for the e book supply chain

optimal insurance in incomplete markets this paper examines the theory of optimal insurance purchasing in the presence of uninsurable background risk existing theorems concerning the optimal level of insurance and the optimal form of an insurance contract are shown to hold only under restricted market and risk assumptions in particular conditions sufficient for the optimality of full coverage or sufficient for the optimality of deductible policies depend on the correlation between insurable and uninsurable risks these results may provide a partial explanation why existing theory is often contradicted by observable behavior

the name your own price channel in the travel industry an analytical exploration name your own price nyop retailers such as priceline offer an alternative distribution channel for service providers in the travel industry such as airlines hotels and car rental companies our research employs an analytical model to identify and understand key trade offs driving the decision by a service provider to employ an nyop channel assuming that such a channel is available this decision requires the existence of forces that counteract the adverse consequences of cannibalization of sales through traditional posted price channels our analysis provides some insight into these forces contracting with the nyop retailer facilitates market segmentation and price discrimination and allows for disposal of excess capacity after meeting business travel demand however the cost of this flexibility is that the service provider can no longer credibly precommit to maintaining high prices when there is unsold capacity also when contracting with an independent retailer the service provider is unable to extract the entire revenue generated from nyop consumers a key insight from our model is that the rationale for contracting with an nyop retailer is driven by the uncertainty in business travel demand not the expectation of excess capacity indeed all else equal the larger the capacity the less likely it is that contracting with an nyop retailer is the right decision on the part of the service provider

on the function of sales assistance the paper provides a formal rationale for the common practice of using sales assistance the argument is made in a model where a consumer s situation determines his needs the products are differentiated and the map identifying the best match between a consumer s situation and a product is known only to the sales assistant i look at procedure which involves the consumer revealing his needs and the sales assistant identifying the best matching product this is compared to several other procedures and found to be best when the number of possible consumer situations is large it is shown that reputational considerations may keep the sales assistant honest i look at the impact of guarantees and other modifications to the model and discuss normative implications

the exponomial choice model a new alternative for assortment and price optimization we investigate the use of a canonical version of a discrete choice model due to daganzo 1979 daganzo c 1979 multinomial probit the theory and its application to demand forecasting academic press new york in optimal pricing and assortment planning in contrast to multinomial and nested logit the prevailing choice models used for optimizing prices and assortments this model assumes a negatively skewed distribution of consumer utilities an assumption we motivate by conceptual arguments as well as published work the choice probabilities in this model can be derived in closed form as an exponomial a linear function of exponential terms the pricing and assortment planning insights we obtain from the exponomial choice ec model differ from the literature in two important ways first the ec model allows variable markups in optimal prices that increase with expected utilities second when prices are exogenous the optimal assortment may exhibit leapfrogging in prices i e a product can be s

multiplicative background risk although there has been much attention in recent years on the effects of additive background risks the same is not true for its multiplicative counterpart we consider random wealth of the multiplicative form xy where x and y are statistically independent random variables we assume that x is endogenous to the economic agent but that y is an exogenous and nontradable background risk that represents a type of market incompleteness our main focus is on how the presence of the multiplicative background risk y affects risk taking behavior for decisions on the choice of x we extend the results of gollier and pratt 1996 to characterize conditions on preferences that lead to more cautious behavior

bricks vs clicks the impact of manufacturer encroachment with a dealer leasing and selling of durable goods in durable goods markets many brand name manufacturers including ibm hp epson and lenovo have adopted dual channel supply chains to market their products there is scant literature however addressing the product durability and its impact on players optimal strategies in a dual channel supply chain to fill this void we consider a two period dual channel model in which a manufacturer sells a durable product directly through both a manufacturer owned e channel and an independent dealer who adopts a mix of selling and leasing to consumers our results show that the manufacturer begins encroaching into the market in period 1 but the dealer starts withdrawing from the retail channel in period 2 moreover as the direct selling cost decreases the equilibrium quantities and wholesale prices become quite angular and often nonmonotonic among other results we find that both the dealer and the supply chain may benefit from the manufacturer s encroachment our results also indicate that both the market structure and the nature of competition have an important impact on the player s dealer s optimal choice of leasing and selling

cross hedging under multiplicative basis risk cross hedging price risk in an incomplete financial market creates basis risk we propose a new way of modeling basis risk where price risk and basis risk are combined in a multiplicative way under this specification positive prudence is a necessary and sufficient condition for underhedging in an unbiased market using the example of cross hedging jet fuel price risk with crude oil futures we show that the new specification is superior in describing the price series and that optimal cross hedges differ significantly from those derived under the traditional additive cross hedging model

game theoretical perspectives on dual channel supply chain competition with price discounts and pricing schemes abstract this paper evaluates the impact of price discount contracts and pricing schemes on the dual channel supply chain competition channel conflict occurs when the supplier enters the online direct channel traditional contracts normally require tedious administrational participation full information of the cost structures and other factors the introduction of simple price discount contracts aims at providing easy implementation and effective coordination results from supplier stackelberg retailer stackelberg and nash game theoretic perspectives we show that the scenarios with price discount contracts can outperform the non contract scenarios in addition we show consistent pricing scheme can reduce the channel conflict by inducing more profit to the retailer the leader in the games might but is not guaranteed to have advantages

bricks and mortar vs clicks and mortar an equilibrium analysis abstract the internet has provided traditional retailers a new means with which to serve customers consequently many bricks and mortar retailers have transformed to clicks and mortar by incorporating internet sales examples of companies making such a transition include best buy wal mart barnes noble etc despite the increasing prevalence of this practice several fundamental questions remain 1 does it pay off to go online 2 which is the equilibrium industry structure 3 what is the implication of this business model for consumers we study these issues in an oligopoly setting and show that clicks and mortar arises as the equilibrium channel structure however we find that this equilibrium does not necessarily imply higher profits for the firms in some cases rather it emerges as a strategic necessity consumers are generally better off with clicks and mortar retailers if firms align with pure e tailers to reach the online market we show that a prisoner s dilemma type equilibrium may arise

a supply chain model with direct and retail channels abstract we study a dual channel supply chain in which a manufacturer sells to a retailer as well as to consumers directly consumers choose the purchase channel based on price and service qualities the manufacturer decides the price of the direct channel and the retailer decides both price and order quantity we develop conditions under which the manufacturer and the retailer share the market in equilibrium we show that the difference in marginal costs of the two channels plays an important role in determining the existence of dual channels in equilibrium we also show that demand variability has a major influence on the equilibrium prices and on the manufacturer s motivation for opening a direct channel in the case that the manufacturer and the retailer coordinate and follow a centralized decision maker we show that adding a direct channel will increase the overall profit our numerical results show that an increase in retailer s service quality may increase the manufacturer s profit in dual channel and a larger range of consumer service sensitivity may benefit both parties in the dual channel our results suggest that the manufacturer is likely to be better off in the dual channel than in the single channel when the retailer s marginal cost is high and the wholesale price consumer valuation and the demand variability are low

a meta analysis of multibrand multioutlet channel systems in today s multibrand multichannel marketplace optimal channel design involves issues such as distribution intensity channel exclusivity vertical and horizontal coordination and online offline mixed structures we investigate how a firm s choice in these design issues affects its profitability under varying levels of brand and outlet differentiation our spatial model explicitly captures heterogeneous consumer preference for brand position store location and outlet type under various consumer behavior assumptions we apply this same underlying model to 10 different channel structures deriving associated demand functions and equilibrium solutions we perform a meta analysis over the entire set of results to estimate a general model that summarizes the linkages among the factors shaping optimal channel structure decisions in a multibrand multioutlet market this general model efficiently describes the complex interactions of channel characteristics with industry structure and consumer characteristics providing new findings as well as greater clarity to some results in the literature a predictive analysis applied to additional channel structures exhibits strong generalizability in qualitative findings

mail versus mall a strategic analysis of competition between direct marketers and conventional retailers consumers now purchase several offerings from direct sellers including catalog and internet marketers these direct channels exist in parallel with the conventional retail stores the availability of multiple channels has significant implications for the performance of consumer markets the literature in marketing and economics has however been dominated by a focus on the conventional retail sector this paper is an effort toward modeling competition in the multiple channel environment from a strategic viewpoint at the outset a parsimonious model that accommodates the following consumer and market characteristics is introduced first the relative attractiveness of retail shopping varies across consumers second the fit with the direct channel varies across product categories third the strength of existing retail presence in local markets moderates competition fourth in contrast with the fixed location of the retail store that anchors its localized market power the location of the direct marketer is irrelevant to the competitive outcome the model is first applied in a setting where consumers have complete knowledge of product availability and prices in all channels in the resulting equilibrium the direct marketer acts as a competitive wedge between retail stores the direct presence is so strong that each retailer competes against the remotely located direct marketer rather than against neighboring retailers this outcome has implications for the marketing mix of retailers which has traditionally been tuned to attract consumers choosing between retail stores in the context of market entry conditions under which a direct channel can access a local market in retail entry equilibrium are derived our analysis suggests that the traditional focus on retail entry equilibria may not yield informative or relevant findings when direct channels are a strong presence next the role of information in multiple channel markets is modeled this issue is particularly relevant in the context of direct marketing where the seller can typically control the level of information in the marketplace sometimes on a customer by customer basis e g by deciding on the mailing list for a catalog campaign when a certain fraction of consumers does not receive information from the direct marketer the retailers compete with each other for that fraction of the market the retailer s marketing mix has to be tuned in this case to jointly address direct and neighboring retail competition the level of information disseminated by the direct marketer is shown to have strategic implications and the use of market coverage as a lever to control competition is described even with zero information costs providing information to all consumers may not be optimal under some circumstances in particular when the product is not well adapted to the direct channel the level of market information about the direct option should ideally be lowered the only way to compete with retailers on a larger scale with a poorly adapted product is by lowering direct prices which lowers profits lowering market information levels and allowing retailers to compete more with each other facilitates a higher equilibrium retail price in turn this allows a higher direct price to be charged and improves overall direct profit on the other hand when the product is well adapted increasing direct market presence and engaging in greater competition with the retail sector yields higher returns the finding that high market coverage may depress profits raises some issues for further exploration first implementing the optimal coverage is straightforward when the seller controls the information mechanism as in the case of catalog marketing the internet in contrast is an efficient mechanism to transmit information but does not provide the sellers with such control over the level of market information a key reason is that the initiative to gather information on the internet lies largely with consumers the design and implementation of mechanisms to control aggregate information levels in electronic markets can therefore be an important theme for research and managerial interest second direct marketers have traditionally relied on the statistical analysis of customer records to decide on contact policies the analysis in this paper reveals that these policies can have significant strategic implications as well research that integrates the statistical and strategic aspects could make a valuable contribution the paper concludes with a discussion of issues for future research in multiple channel markets including avenues to model competition in settings with multiple direct marketers

product customization and price competition on the internet the internet provides an unprecedented capability for sellers to learn about their customers and offer custom products at special prices in addition customization is more feasible today because of advances in manufacturing technologies that have improved sellers manufacturing flexibility we first develop a model of product customization and flexible pricing to incorporate the salient roles of the internet and flexible manufacturing technologies in reducing the costs of designing and producing tailored consumer goods we show how a monopoly seller may earn the highest profits by producing both standard and custom products and can raise prices for both types of products as customization and information collection technologies improve simultaneous adoption of customization in a duopoly reduces the differentiation between their standard products but does not intensify price competition compared with a two facility monopolist the duopoly may underinvest in customization consumer surplus improves after sellers adopt customization but does not monotonically increase as customization technologies advance when firms face a fixed entry cost and adopt customization sequentially the first entrant always achieves an advantage and may be able to deter subsequent entry by choosing its customization scope strategically

pooling access and countervailing power in channel governance fruit and vegetable marketing organization the greenery has experienced various governance structure changes like horizontal merger forward integration and the emergence of grower associations a multilateral incomplete contracting model is presented to account for these changes by analysing the interactions between pooling access and countervailing power this model does not only explain the changes at the greenery but it contributes also to the design of efficient channel governance this paper was accepted by pradeep chintagunta and preyas desai special issue editors this paper was accepted by pradeep chintagunta and preyas desai special issue editors

strategic market coverage in spatial competition abstract we consider in this paper competition through prices and market coverages in a spatial duopoly we characterize and compare the stackelberg equilibria and the bertrand equilibria we show that when the cost of informing the consumers is small duopolists always choose to inform all consumers in the bertrand equilibrium but the leader in the stackelberg equilibrium may choose not to inform everyone when the duopolistic competition is intense enough thereby generating overlapping markets in equilibrium prices may be strategic complements strategic substitutes or be strategically independent considering market coverage as chosen by the firms changes the conventional relationships between differentiation profits and markups

standard vs custom products variety lead time and price competition in this paper we study the standardization and customization decisions of two firms in a competitive setting along with variety lead time and price decisions we incorporate consumer heterogeneity both in firm preference or store convenience and in product attribute preferences we find that the equilibrium outcome depends on the cost efficiencies of the production technologies as well as the consumer sensitivity to product fit and lead time we develop an index that signifies the relative attractiveness of the standardization and customization strategies and the potential outcomes we identify the strategic roles of product variety and lead time in the competition in contrast to the previous literature we find that increasing the variety will not intensify the price competition if there is sufficient firm differentiation rather it relieves the price pressure for the firm as it satisfies consumer needs better and enables higher price premiums we also analyze the impact of asymmetric variable costs fixed costs and brand reputation on the equilibrium decisions

when showrooming increases retailer profit abstractshowrooming the phenomenon of consumers visiting a brick and mortar b m store to learn about products but then buying online to obtain lower prices is attracting increased attention both in business practice and in academic literature it is considered a major threat to the b m retailers and determining how to fight it seems to be the only consideration however the manufacturer s need for retail informational services has always been one of the essential reasons for retailers to exist and is a means for retailers to achieve profitability the popular arguments about the threat of showrooming ignore the strategic role of the manufacturer in the distribution channel this article analytically shows that when the manufacturer s decisions are considered i e when the manufacturer retailer contract is endogenous consumers ability to engage in showrooming may lead to increased rather than decreased profitability for b m retailer s thus retail efforts to restrict showrooming behavior m

income risk borrowing constraints and portfolio choice economic theory suggests that uninsurable income risk and the expectation of future borrowing constraints can reduce the share of risky assets in a household s portfolio if the utility function exhibits decreasing absolute risk aversion and decreasing prudence an individual will reduce his exposure to rate of return risks when confronted with other independent risks if there are transaction costs the expectation of future borrowing constraints should induce individuals to keep a lower proportion of their wealth in the form of illiquid and risky assets the authors find support for these propositions in a cross section of italian households copyright 1996 by american economic association

direct marketing indirect profits a strategic analysis of dual channel supply chain design the advent of e commerce has prompted many manufacturers to redesign their traditional channel structures by engaging in direct sales the model conceptualizes the impact of customer acceptance of a direct channel the degree to which customers accept a direct channel as a substitute for shopping at a traditional store on supply chain design the customer acceptance of a direct channel can be strong enough that an indepent manufacturer would open a direct channel to compete with its own retailers here direct marketing is used for strategic channel control purposes even though it is inefficient on its own and surprisingly it can profit the manufacturer even when so direct sales occur specifically we construct a price setting game between a manufacturer and its independent retailer direct marketing which indirectly increases the flow of profits through the retail channel helps the manufacturer improve overall profitability by reducing the degree of inefficient price double marginalization while operated by the manufacturer to constrain the retailer s pricing behavior the direct channel may not always be detrimental to the retailer because it will be accompanied by a wholesale price reduction this combination of manufacturer pull and push can benefit the retailer in equilibrium finally we show that the mere threat of introducing the direct channel can increase the manufacturer s negotiated share of cooperative profits even if price efficiency is obtained by using other business practices

when should a manufacturer set its direct price and wholesale price in dual channel supply chains abstract applying an observable delay game framework developed in noncooperative game theory we investigate the timing problem concerning when a manufacturer managing dual channel supply chains consisting of a retail channel and a direct channel should post its wholesale price and direct price conventionally operational research models describing dual channel supply chains examine price competition where the retailer and the manufacturer simultaneously determine the retail and direct prices respectively in contrast to this conventional setting our model demonstrates that such simultaneous price competition never arises if the manufacturer and retailer can choose not only the level of the price but also the timing of pricing if the manufacturer sets the direct price after setting the wholesale price to the retailer the retailer accelerates the timing of retail pricing prior to the direct price setting by the manufacturer our findings suggest that the manufacturer should post the direct price before or upon but not after setting the wholesale price for the retailer this upfront posting of the direct price not only constitutes the subgame perfect nash equilibrium of the noncooperative game between channel members but also maximizes the profits for a manufacturer employing multichannel sales strategies

preservation of more risk averse under expectations abstract the preservation of risk aversion properties of utility functions under expectation operations is of interest in the study of derived utility functions in sequential decision problems and in problems with multiple contemporaneous sources of uncertainty the purpose of this note is to present sufficient conditions for the pratt relation more risk averse to be preserved under expectations

welfare consequences of food prices increases evidence from rural mexico this paper presents an analysis of the welfare consequences of recent increases in food prices in mexico using micro level data we estimate a quaids model of demand for food using data collected to evaluate the conditional cash transfer program oportunidades we show how the poor have been affected by the recent increases and changes in relative prices of foods we also show how a conditional cash transfer program provides a means of alleviating the problem of increasing staple prices and simulate the impact of such a policy on household welfare and consumer demand we contrast this policy with alternative policy responses such as price subsidies which distort relative prices and are less well targeted

a dynamic model of competitive entry response i develop a dynamic investment game with a memoryless research and development process in which an incumbent and an entrant can invest in a new technology and the entrant can also invest in the old technology i show that an increase in the probability of successfully implementing a technology can cause the incumbent to reduce its investment under certain conditions if the success probability is high the incumbent allows the entrant to win the new technology so that firms reach an equilibrium in which they use different technologies and threats of retaliation prevent attacks but if the success probability is low such an equilibrium cannot be sustained and both firms eventually implement both technologies

product diversion to a direct competitor a manufacturer will often limit competition among downstream partners by authorizing only a select group of retailers to carry its product however it is not uncommon for authorized retailers to create an additional competitor by diverting units to an unauthorized seller this paper presents an analytical model that demonstrates how diversion from authorized retailers to an unauthorized direct competitor can occur under circumstances not considered by the prior literature in fact diversion can represent a prisoner s dilemma whereby retailers diminish their own profit by selling to the unauthorized direct seller the authorized retailer s profit loss actually increases as the per unit diversion costs incurred by the authorized retailer decrease the model also shows that the unauthorized direct seller earns greater profit by strategically procuring a unilaterally constraining quantity even though this procurement strategy results in an equivalent increase in the quantity sold by the retailers combined the results identify a new reason for diversion and its consequences for retailers and the unauthorized direct seller

individual marketing with imperfect targetability our research investigates the competitive ramifications of individual marketing and information management in today s information intensive marketing environments the specific managerial issues we address are as follows first what kinds of incentive environments do competing firms face when they can only target individual customers imperfectly second does the improvement in an industry s targetability intensify price competition in the industry such that all competing firms become worse off third should a firm share its customer knowledge so as to improve its rival s targetability fourth how should an information vendor sell its information that can improve a firm s targetability finally do competing firms have the same incentives to invest in their own targetability to answer those questions we develop a simple model a la narasimhan 1988 in which each of the two competing firms have their own loyal customers and compete for common switchers we assume that each firm can classify its own loyal customers and switchers correctly only with a less than perfect probability this means that each firm s perceived customer segmentation differs from the actual customer segmentation based on their perceived reality these two competing firms engage in price competition as an extension we also allow the competing firms to make their investment decisions to acquire targetability we show that when individual marketing is feasible but imperfect improvements in targetability by either or both competing firms can lead to win win competition for both even if both players behave noncooperatively and the market does not expand win win competition results from the fact that as a firm becomes better at distinguishing its price insensitive loyal customers from the switchers it is motivated to charge a higher price to the former however due to imperfect targetability each firm mistakenly perceives some price sensitive switchers as price insensitive loyal customers and charges them all a higher price these misperceptions thus allow its competitors to acquire those mistargeted customers without lowering their prices and hence reduce the rival firm s incentive to cut prices this effect softens price competition in the market and qualitatively changes the incentive environment for competing firms engaged in individual marketing a prisoner s dilemma occurs only when targetability in a market reaches a sufficiently high level this win win perspective on individual marketing has many managerial implications first we show that superior knowledge of individual customers can be a competitive advantage however this does not mean that a firm should always protect its customer information from its competitors to the contrary we find that competing firms can all benefit from exchanging individual customer information with each other at the nascent stage of individual marketing when firms targetability is low indeed under certain circumstances a firm may even find it profitable to give away this information unilaterally however as individual marketing matures as firms targetability becomes sufficiently high further improvements in targetability will intensify price competition and lead to prisoner s dilemma therefore it is not only prudent politics but also a business imperative for an industry to seize the initiative on the issue of protecting customer privacy so as to ensure win win competition in the industry second we show that the firm with a larger number of loyal customers tends to invest more in targetability when the cost of acquiring targetability is high however the firm with a smaller loyal base can through information investment acquire a higher level of targetability than the firm with a larger loyal base as long as the cost of acquiring targetability is not too high as the cost further decreases competing firms will all have more incentives to increase their investments in targetability until they achieve the highest feasible level third an information vendor should make its information available nonexclusively exclusively when its information is associated with a low high level of targetability when the vendor does sell its information exclusively it should target a firm with a small loyal following if it can impart a high level of targetability to that firm finally our analysis shows that an information intensive environment does not doom small firms in fact individual marketing may provide a good opportunity for a small firm to leapfrog a large firm the key to leapfrogging is a high level of targetability or customer knowledge

competing across technology differentiated channels the impact of network externalities and switching costs technology driven commerce channels such as the web possess several unique features that differentiate them from traditional channels the interaction between firms operating across these differentiated channels involves interesting competitive dynamics that cannot be captured by isolated models of electronic markets this paper develops a stylized spatial differentiation model to examine the impact of differences in channel flexibility network externalities and switching costs on competition between online traditional and hybrid firms a basic model highlighting the moderating influence of the hybrid firm on both channels is extended to account for differential network externalities and switching costs across the two channels our analysis indicates that while network effects as well as switching costs lead to the tipping of markets such tipping occurs primarily due to the moderating effects of the competing channel more importantly with network effects an increased market share does not translate into higher profits contradictory to conventional wisdom our results indicate that in a static market consumers rather than firms benefit from increasing network externalities with competitive effects outweighing the surplus extraction abilities of firms our results also highlight the importance of alternative revenue streams and provide insights for firms grappling with issues of channel choice as well as integration and divestiture

price and lead time decisions in dual channel supply chains abstract manufacturers today are increasingly adopting a dual channel to sell their products i e the traditional retail channel and an online direct channel empirical studies have shown that service quality we focus on the delivery lead time of the direct channel even goes beyond product price as one of the major factors influencing consumer acceptance of the direct channel delivery lead time has significant effects on demand profit and pricing strategy however there is scant literature addressing the decision on the promised delivery lead time of a direct channel and its impact on the manufacturer s and retailer s pricing decisions to fill this gap we examine the optimal decisions of delivery lead time and prices in a centralized and a decentralized dual channel supply chain using the two stage optimization technique and stackelberg game and analyze the impacts of delivery lead time and customer acceptance of a direct channel on the manufacturer s and retailer s pricing behaviours we analytically show that delivery lead time strongly influences the manufacturer s and the retailer s pricing strategies and profits our numerical studies reveal that the difference between the demand transfer ratios in the two channels with respect to delivery lead time and direct sale price customer acceptance of the direct channel and product type have great effects on the lead time and pricing decisions

strategic introduction of the marketplace channel under spillovers from online to offline sales abstract in recent years the increasing prevalence of online retailing has given rise to a novel e channel the marketplace in which manufacturers sell their products directly to consumers by paying fees to e tailers this e channel unlike the conventional reseller e channel endows manufacturers with absolute control over prices which helps protect brick and mortar channels especially in the presence of different types of spillovers from online to offline sales however the marketplace channel is nevertheless not used in practice in some instances as a result of the e tailer s costly platform fees and the manufacturer s inefficiency in direct retail sales these different attitudes raise key questions of whether and under what conditions the marketplace channel should be introduced in addition to the reseller channel in this paper we study these problems by measuring the combined effects of the online spillover the platform fee and the manufacturer s retailing inefficiency we demonstrate that the manufacturer s willingness to employ the marketplace channel increases and the e tailer s willingness to do so decreases in the level of spillovers when combining the two we find that a pareto improvement can be achieved under a moderate spillover we also present an interesting insight that the introduction of the marketplace channel fundamentally changes the effects of the spillover on the e tailer while merely strengthening those on the manufacturer moreover a higher platform fee does not necessarily incentivize the e tailer to join the marketplace and the manufacturer s retailing inefficiency may either benefit or harm the e tailer depending on the size of the platform fee

demand forecast sharing in a dual channel supply chain abstract we assess the benefits of sharing demand forecast information in a manufacturer retailer supply chain consisting of a traditional retail channel and a direct channel the demand is a linear function of price with a gaussian primary demand i e zero price market potential both the manufacturer and the retailer set their price based on their forecast of the primary demand in this setting we investigate the value of sharing demand forecasts we analyze the make to order scenario in which prices are set before and production takes place after the primary demand is known and the make to stock scenario in which production takes place and prices are set before the primary demand is known we also compare the supply chain performance with and without the direct channel under some assumptions production cost is zero and each demand function has the same slope of price we find that the direct channel has a negative impact on the retailer s performance and under some conditions the manufacturer and the whole supply chain are better off our research extends and complements prior research that has investigated only the inventory and replenishment related benefits of information sharing

some stronger measures of risk aversion in the small and the large with applications the arrow pratt measures of risk aversion for von neumann morgenstern utility functions have become workhorses for analyzing problems in the microeconomics of uncertainty they have been used to characterize the qualitative properties of demand in insurance and asset markets to examine the properties of risk taking in taxation models and to study the interaction between risk and life cycle savings problems to name just a few applications equally importantly they have generated the linear risk tolerance class of utility functions which has provided canonical examples in such diverse areas as portfolio theory and the theory of teams despite these successes there have been a number of areas for which the results have been weaker than hoped it is natural to use the risk aversion measures to compare the behavior of individuals in risky choice situations for example consider the individual portfolio choice problem in a two asset world with a riskless asset and a risky asset if individual a has a uniformly higher arrow pratt coefficient of risk aversion than individual b then b will always choose a portfolio combination with more wealth invested in the risky asset but suppose that both assets are risky now there is no obvious sense in which the more risk averse individual can be said to hold a less risky portfolio but it seems strange that such a simple alteration should destroy the analytics which support the basic intuition similarly consider the basic insurance problem if one individual a is more risk averse than another b in the arrow pratt sense it follows that a will pay a larger premium to insure against a random loss than will b typically though an individual evaluates partial rather than total insurance that is only some gambles can be insured against and others must be retained in this case even when the gambles which are retained are independent from those which are insured it is no longer true that the individual whose arrow pratt measure of risk aversion is higher will pay a larger insurance premium the situation is no better when we consider comparative statics exercises for a single individual decreasing absolute risk aversion in the sense of arrow and

compensation incentives and the duality of risk aversion and riskiness the common folklore that giving options to agents will make them more willing to take risks is false in fact no incentive schedule will make all expected utility maximizers more or less risk averse this paper finds simple intuitive necessary and sufficient conditions under which incentive schedules make agents more or less risk averse the paper uses these to examine the incentive effects of some common structures such as puts and calls and it briefly explores the duality between a fee schedule that makes an agent more or less risk averse and gambles that increase or decrease risk with the growing interest in executive compensation and agency problems

decreasing relative risk aversion and tests of risk sharing the relative risk aversion rra coefficient of a household whose consumption is close to the subsistence level may be very high for example if consumption is exactly at the subsistence level the household may not be willing to bear any risk if this is the case then the rra coefficient must be a decreasing function of wealth for poor households therefore we should allow the possibility of decreasing rra drra in testing the full risk sharing hypothesis however existing tests in the empirical literature are derived using preferences that exhibit either increasing or constant rra even when they are applied to data containing low income households we therefore use a hyperbolic absolute risk aversion hara utility which implies increasing constant and decreasing rra as special cases to test full risk sharing hypothesis using the international food policy research institute ifpri and the international crops research institute of the semi arid tropics icrisat household level data sets we find evidence in support of the drra hypothesis along with evidence favoring full risk sharing hypothesis at the village level and evidence against the hypothesis at the inter village level when rra is restricted to be constant we replicate the previous results in the literature reject the full risk sharing hypothesis at both levels our tests however reject this restriction and favor drra in almost all cases these results suggest that it is important to allow for drra in testing the full risk sharing hypothesis when data containing low income households are investigated this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this this abstract was borrowed from another version of this item

product line competition customization vs proliferation we study a market with customers who have heterogeneous preferences for product attributes we consider two types of firms that compete on price and product variety a traditional firm which chooses a limited set of product configurations and a customizing firm which can produce any configuration to order the traditional firm carries product inventories and experiences a lead time delay the customizing firm does not carry inventory and its customers incur waiting costs until they receive their orders we assume that the customizing firm has limited capacity in the short run e g when it does not outsource production to high volume manufacturers we derive the equilibrium for a duopoly competition between the customizing firm and the traditional firm study its characteristics and compare it to a monopoly we characterize conditions that favor customization under competition we find that the customizing firm s profit is not monotone in the market size and its ease of customization similarly a

introduction of a second channel implications for pricing and profits in this paper we study the optimal pricing strategies when a product is sold on two channels such as the internet and a traditional channel we assume a stylized deterministic demand model where the demand on a channel depends on prices degree of substitution across channels and the overall market potential we first study four prevalent pricing strategies which differ in the degree of autonomy for the internet channel for a monopoly we provide theoretical bounds for these pricing strategies we also analyze the duopoly case where an incumbent mixed retailer faces competition with a pure retailer and characterize price equilibria finally through a computational study we explore the behavior price and profits under different parameters and consumer preferences for the alternative channels

implications of reduced search cost and free riding in e commerce this paper examines a market where the provision of information service is costly but information service has the characteristics of a public good consumers on the other hand can use the information service to make an informed purchase decision and derive higher utility from consuming their ideal product however after receiving the information service from an information service provider consumers can easily free ride by purchasing at low price sellers who do not provide any information service the paper examines the competition where sellers compete by providing information service for horizontally differentiated products and where technology reduces consumers search cost it is found that in this market a seller needs to establish itself as an information service provider in order to make positive profits even when there is free riding a seller however cannot make positive profits by free riding all the time also with an increase in competition in the information service market sellers have reduced incentives to provide information service it is also found that in this market a decrease in search cost may increase or decrease social welfare

centrality and pricing in spatially differentiated markets the case of gasoline we highlight the importance of centrality for pricing firms characterized by a more central position in a spatial network are more powerful in terms of having a stronger impact on their competitors prices and on equilibrium prices these propositions are derived from a simple theoretical model and investigated empirically for the retail gasoline market of vienna austria we compute a measure of network centrality based on the locations of gasoline stations in the road network results from a spatial autoregressive model show that prices of gasoline stations are more strongly correlated with prices of central competitors

note on self restraint as an online entry deterrence strategy we develop a game theoretical model to show that in the markets where price consistency across channels is critical an incumbent brick and mortar retailer can deter the online entry of a pure play e tailer by strategically refraining from entering online in the markets where price consistency is not a constraint we find that the incumbent can deter the e tailer s entry only if it enters online and credibly operates the online channel as an independent profit center in other words the incumbent must be willing to cannibalize its own brick and mortar business by charging a low online price we also discuss some social welfare implications of retail online entry and the managerial insights of our analysis

distribution channel strategies in a mixed market abstract this paper studies equilibrium channel strategies in a mixed market with a public firm and a private firm the public firm is concerned with social welfare while the private firm aims to maximize its own profit each firm decides whether to adopt an integrated or a decentralized channel we examine two standard market competition modes bertrand and cournot within each competition mode we consider two typical vertical contracts wholesale price and two part tariff contracts our results suggest that equilibrium channel structures depend on the market competition mode the vertical contract form and the level of product substitutability specifically the channel strategy of the private firm depends mainly on the vertical contract form under a two part tariff contract the private firm always chooses decentralization under a wholesale price contract the private firm chooses integration for most scenarios except for highly substitutable products under bertrand competition i e under very intense competition the channel strategy of the public firm depends mainly on the competition mode under bertrand competition the public firm always chooses decentralization under cournot competition the public firm always chooses the opposite of the private firm s strategy

the beginning of online retail competition and its origins an application to personal computers abstract this paper measures cross price elasticity for online and retail personal computers pcs across several years the results indicate that cross price elasticity for 1996 and 1997 was a statistical 0 while in 1998 it was large and statistically significant approximately 3 0 i consider both demand side and supply side explanations for this change my demand side explanations argue that a change in the composition of households shopping in online and retail markets is responsible for the switch the empirical results suggest that these explanations are not correct my supply side explanations argue that changes in business models late in 1997 were responsible instead the first supply side explanation says that expansion by firms from single to multiple distribution channels e g expansion from online only to online and retail drove the new competition both apple and gateway made such expansions late in 1997 and the data provide some evidence that this contributed to online retail competition the second explanation says that the increase in the number of brands offering both physical inspection through a physical location and customizability drove the new competition these changes marked directed efforts to target high end buyers by both types of suppliers the data also support this explanation while i am unable to quantify which has the greater impact it is clear that online retail competition began largely because of these two supply side changes

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

risky choices and correlated background risk the analysis of a risky project should take into account not only uncertainties about the return from that project project risk but also uncertainties associated with other ongoing projects and with exogenous factors that can impact final wealth background risk the presence of background risk can change the optimal course of action with respect to a project and ignoring such risk might lead to a poor decision most work on background risk assumes that project risk and background risk are independent and are additive in their impact on wealth however independence is often unrealistic and background risk operates in a multiplicative manner in many situations we relax the independence assumption and consider a model with both additive and multiplicative background risk the optimal decisions in the correlated setting can be very different than those that would appear optimal if the correlation were ignored the impact of correlation differs in the additive and multiplicative cases with positive correlation being beneficial in some cases and negative correlation in others the analytical and numerical results indicate that in analyzing decision making problems it is very important to understand the direction and degree of dependence between project risk and background risks