optimal incentive schemes with many agents the grossman hart principal agent model of moral hazard is extended to the multiple agent case to explore the use of relative performance in optimal incentive contracting under the assumption that the principal chooses incentive schemes to implement agent actions as nash equilibria necessary and sufficient conditions are derived for the optimality of independent contracts of rank order tournaments and for attainability of the first best in this context the relation of the principal s welfare to the correlation between the underlying randomness in outputs of different agents is also investigated finally some problems with the nash equilibrium implementation assumption are discussed in this paper we extend the grossman hart analysis of the principal agent problem to a multiple agent setting in this version of the problem a risk neutral principal is assumed to observe the output or a performance index for each risk averse agent the output of any agent depends on a privately observable action chosen by the agent and an exogenous random variable the realization of which is not observed either by the principal or by the agent before choosing its action we especially focus attention on the role of relative performance evaluation in optimal incentive contracts and the way this depends on properties of the underlying production technology and the joint distribution of the random variables affecting the outputs of different agents in section 2 of the paper we consider the principal s problem of finding an optimal incentive scheme and an action tuple for agents subject to the constraint that the latter be implemented as a nash equilibrium between agents by the chosen incentive scheme where agents must attain at least their reservation utilities a characterization of optimal incentive schemes is derived analogous to the grossman hart characterization for the single agent problem this characterization is then utilized to find sufficient and generically necessary conditions for a optimal contracts for any agent to be independent of the performance of other agents and b optimality of rank order tournaments where payments depend solely on ordinal comparisons of output across agents we then describe a necessary and sufficient condition for the principal to extract maximum advantage from relative performance clauses i e achieve the first best level of expected utility in the multiagent situation an implication of this result is that under fairly weak conditions perfect correlation in the underlying production uncertainties for different agents enables the principal to attain the first best if and only if sufficiently heavy penalties can be inflicted on agents we then enquire what happens in intermediate cases of non perfect correlation it turns out that while in general the principal s welfare is a continuous function of the correlation coefficient it is not always nondecreasing in the latter because the correlation coefficient is not a general measure of association between two random variables but rather a measure of linear association between them

how do cartels use vertical restraints reflections on bork s the antitrust paradox abstractin the antitrust paradox robert bork discusses vertical restraints and policy responses to naked and ancillary price fixing empirical research finds that vertical restraints are generally welfare enhancing we examine cartels that used vertical restraints to support collusion we find that one quarter of a sample of convicted contemporary international cartels used vertical restraints some of these cartels used vertical restraints to control downstream firms who might otherwise have undermined collusion in other cases distributors themselves had market power and received a share of cartel rents in return for their willingness to exercise that power as part of a cartel this raises questions for antitrust policy toward vertical restraints in highly concentrated industries or in those with a history of cartel activity

policy spillovers in the regulation of multiple pollutants abstract we analyze the interplay between policies aimed to control transboundary and local pollutants such as greenhouse gases and particulate matter the two types of pollution interact in the abatement cost function of the polluting firms through economies or diseconomies of scope they are regulated by distinct entities potentially with different instruments that are designed according to some specific agenda we show that the choice of regulatory instrument and the timing of the regulations matter for efficiency emissions of the local pollutant are distorted if the regulators anticipate that transboundary pollution will later be regulated through emission caps the regulation is too stringent with diseconomies of scope and not enough with economies of scope in contrast we obtain efficiency if the transboundary pollutant is regulated by emission taxes or tradable emission permits provided that the revenue from taxing emissions are redistributed to the countries in a lump sum way and that the initial allocation of tradable emission permits is not linked to abatement costs

a common agency with incomplete information in the present article i demonstrate that forming a common agency by oligopolistic firms may not be to their advantage if agents have access to private information about their costs bernheim and whinston 1985 1986 pointed out that a common agency allows the firms to sustain the collusive outcome by giving them a vehicle to internalize the externality generated by their pricing or output decisions if agents have access to private information the advantage pointed out by bernheim and whinston may be more than outweighed by the possible existence of an informational disadvantage specifically if the unit costs of different potential agents are correlated the firm may be more successful in extracting the informational rents of its agent if it contracts with an independent agent and not with the same agent as its rival firm when oligopolistic firms contract with independent agents the revenues of one firm reveal implicit information about the unit costs of agents serving competing firms in the same industry however if the unit costs of different agents are correlated revenues also reflect information about the unit cost of the firm s own agent this additional information transmitted by revenues cannot be controlled by the agent s reporting behavior as a result if the firm conditions its agent s payoff upon revenues it can limit the informational rents that this agent can secure due to the existence of private information this possibility of limiting its agent s informational rents is eliminated if the firm contracts with the same agent as its rivals with a common agency the agent can manipulate the reports delivered to all the firms thus reducing the options available to each of them various patterns of agency relationship exist in markets where oligopolistic producers

welfare improving vertical separation with network externality considering the interplay between network externalities and the degree of product substitutability in a vertical structure we compare the outcomes of vertical integration and vertical separation in contrast to previous results we show that when both products are sufficiently close substitutes there is a threshold level of the network externality parameter beyond which vertical separation is more efficient than vertical integration this is due to the internalization of the network externality by a multiproduct monopolist which in the balance between the extensive and intensive margin leads to higher output prices

endogenous structures of association in oligopolies the formulation of associations of firms in an oligopoly with linear demand is analyzed as a two stage noncooperative game in the first stage firms form associations in order to decrease their costs and in the second stage they compete on the market examples of associations include r d joint ventures and groups of firms adopting common standards in equilibrium the associations formed exhibit two general features they are asymmetric and inefficient

collusion and the banking structure of a duopoly the author shows that in credit relationships the choice of a lender may become a determinant of the extent of competition in downstream industries in the presence of imperfect output markets and asymmetric information in financial markets members of an industry may achieve a partial collusion in the output market by borrowing from the same bank in an oligopoly debt is procompetitive as it gives incentives to the borrowing firm to undertake an aggressive output strategy as both firms borrow the industry becomes more competitive and riskier the firms debt value is decreased a common lender can better control these incentive effects and hence limit the extent of competition in the output market

impact of information sharing and lead time on bullwhip effect and on hand inventory abstract this work analyzes a two echelon warehouse retailer serial supply chain to study the impact of information sharing is and lead time on bullwhip effect and on hand inventory the customer demand at the retailer is assumed to be an autoregressive ar 1 process both the echelons use a minimum mean squared error mmse model for forecasting lead time demand ltd and follow an adaptive base stock inventory policy to determine their respective order quantities for the cases of without is and inter as well as intra echelon is expressions for the bullwhip effect and on hand inventory for the warehouse are obtained considering deterministic lead time the results are compared with the previous research work and an easy analysis of the various bullwhip effect expressions under different scenarios is done to understand the impact of is on the bullwhip effect phenomenon it is shown that some part of bullwhip effect will always remain even after sharing both inter as well as intra echelon information further with the help of a numerical example it is shown that the lead time reduction is more beneficial in comparison to the sharing of information in terms of reduction in the bullwhip effect phenomenon

the role of exclusive territories in producers competition reprinted in cartels stephen salant ed the international library of critical writings in economics edward elgar reference collections

the simple analytics of optimal growth with illegal migrants this paper analyses the impact of illegal migration on the optimal path of domestic resident consumption the analysis draws two important conclusions first if illegal migrants and domestic labour are perfect substitutes illegal migration necessarily lowers the long run per capita consumption of domestic residents second if illegal migrants and domestic labour are imperfect substitutes the effect on the long run per capita domestic consumption is ambiguous however in the cobb douglas case the result is clear cut and per capita domestic consumption rises as a result of illegal migration

implications of immigration policies for the u s farm sector and workforce i background in 1942 the united states and mexico signed the bracero program a formal agreement to draw seasonal labor to work in u s agriculture which provided employment opportunities to poor rural mexicans 1 however this program was abolished in 1964 ending the legal seasonal labor supply to u s agriculture in the southwestern states concurrently the united states passed the immigration act of 1965 establishing a quota of 120 000 legal immigrants per year the abandonment of the bracero program the new legal immigrants quota limits and economic inequality between the united states and mexico paved the way for steady entry of illegal laborers and led to eventual insurmountable illegal immigration population in the united states because illegal immigration was not a serious problem in the 1960s and 1970s legislation addressed only the number of legal immigrants allowed to enter the united states but in the 1980s illegal immigration began to emerge as a national problem and extensive debates entrenched around issues such as preventing the entry of unauthorized workers providing public services to illegal immigrants and even legalizing these workers consequently the u s congress attempted to address the immigration problems by enacting the 1986 immigration reform and control act irca the goals of irca were to eliminate the stock of undocumented workers through amnesty 2 and domestic enforcement of employer sanctions and curb the influx of illegal immigrants by increasing the border surveillance amnesty failed to eliminate the stock of illegal immigrants because only about half of the illegal immigrants filed for citizenship and it created future expectation of amnesty and more illegal unauthorized entry furthermore domestic sanctions on employers of undocumented workers and deportation of these workers were scantly enforced to stop the influx of immigrants irca focused heavily on tightening border control the irca also legislated the h 2a program which allowed agricultural employers to bring in guest workers during seasonal operations ers 2007 however farmers complained that the cumbersome paperwork of h 2a and bureaucratic delay were not conducive to procure seasonal laborers at the time of peak farm operations such as vegetable and fruit picking 3 in spite of irca s amnesty provision and strengthened control measures illegal immigration continued to rise about 12 million unauthorized immigrants resided in the united states in 2007 martin 2007 which is reaffirmed by many popular press reports leading to an extended congressional debate that began at the start of this decade to solve the illegal immigration problem several bills were proposed by the house of representatives the senate and the white house addressing issues related to increased domestic and border enforcements 4 paths to citizenship and guest worker programs montgomery 2006 these bills were not passed because of major disagreements among lawmakers over providing citizenship and guest worker programs as a result of the failed legislations and the september 11 attack the government primarily focused on border security accordingly funding for border enforcement has steadily increased 5 and resources were diverted from domestic to border enforcement however boucher and taylor 2007 documented that increased funding to secure the border did not deter undocumented workers from crossing the border because determined immigrants eventually find a way to enter the country by repeated attempts following september 11 2001 the u s immigration and customs enforcement ice further decreased the number of human hours devoted to worksite inspection because monitoring critical infrastructure took priority gao 2005 for example from 1999 to 2003 the number of human hours for domestic enforcement decreased from 480 000 to 18 000 6 7 but by late 2005 the u

strategic inattention delegation and endogenous market structure abstract we model an industry in which a discrete number of firms choose the output of their differentiated products deciding whether or not to consider the impact of their decisions on aggregate output the firm s choice of ignoring the impact of its production on aggregate output which is typical of monopolistic competition is derived as an equilibrium choice rather than assumed upfront such a choice is labelled as strategic inattention we show that our model of strategic inattention is isomorphic to a model of strategic delegation with managerial compensation based on relative profit performance thus monopolistic competition and cournot oligopoly are reconciled within a general model which can lead to either market form

illegal immigration and resource allocation this paper studies the effects of illegal immigration and the associated expansion of the underground economy on the allocation of resources commodity prices and wages of workers both in the short run when occupational mobility is restricted and in the long run when the skill composition of the labor force is endogenous the paper goes on to consider some of the fiscal implications of illegal immigration and the related expansion of underground activity effects of sanctions against employers hiring illegal aliens and measures to legalize the status of clandestine foreign workers are also examined the geographical focus is on developed countries primarily the united states and europe excerpt

the impact of forecasting methods on the bullwhip effect abstract this paper considers the impact of forecasting methods on the bullwhip effect for a simple replenishment system in which a first order autoregressive process describes the customer demand and an order up to inventory policy characterizes the replenishment decision a bullwhip effect measure is derived for the optimal forecasting procedure that minimizes the mean squared forecasting error for the specified demand process similar measures are obtained for the moving average and exponential smoothing methods the findings indicate that different forecasting methods lead to bullwhip effect measures with distinct properties in relation to lead time and underlying parameters of the demand process moreover a simple rule is established to help managers select a forecasting method that yields the lowest inventory cost

on governing multilateral transactions with bilateral contracts bilateral contracts while neither negotiated nor enforced in an integrated way are nevertheless often interrelated both economically and strategically owing to production or consumption complementarities and to asymmetric information a set of bilateral contracts forms a mechanism with special properties this mechanism forms a contract equilibrium if there is no joint incentive for a supplier and any individual customer unilaterally to alter the terms of their contract if agents preferences are risk neutral in money income and if their private information is independent then there exists a contract equilibrium that implements efficient transactions if in addition preferences are strictly concave and differentiable in goods and services and technologically feasible sets are suitably convex then this equilibrium is essentially unique

legal status and earnings of agricultural workers agricultural workers who work in the united states earn 15 more on average than do undocumented workers these earnings differentials vary substantially with demographic characteristics for example much of the weekly earnings loss from not having legal status can be offset by language ability most of the earnings differential is due to wage differentials rather than hours differentials

incentives in principal agent relationships this article identifies some of the major issues that have been examined in the literature on incentives the article begins by discussing the frictions that lie at the heart of incentive problems next the principal s optimal response to these frictions is explored taking as given the characteristics of the agents with whom the principal interacts in a nonrepeated setting the design of individualized contracts contests and tournaments is analyzed then the principal s task of selecting the best agent is addressed and repeated agency relationships are considered

customized advertising via a common media distributor we show that when a single media content distributor such as a television cable company or an internet provider delivers advertising messages on behalf of multiple competing brands it can sometimes utilize customized advertising to implement monopoly pricing even though such monopolistic pricing can be implemented with varying degrees of customization of commercials product revenues and consumer surplus are highest when the distributor chooses the highest level of customization feasible consumers would obviously prefer aggressive price competition in product markets however given that collusion on prices is facilitated anyway when the distributor acts as a common agent the welfare of consumers is enhanced when commercials are better aligned with their preferences

common marketing agency as a device for facilitating collusion in a variety of markets firms voluntarily and independently delegate control over certain aspects of marketing to common agents in this article we present an explicit model of agency delegation where firms noncooperatively select agents name output prices and choose compensation schemes we exhibit an equilibrium in which all strategic variables not merely the marketing choices delegated to agents but prices as well are selected perfectly cooperatively this cooperative equilibrium is very simple and attractive each firm sets the collusive output price and employs a commission scheme to compensate the agent although each

an agenda for the design and study of international environmental agreements abstract the combination of a general greening of international political debate and the events of 1992 at the rio earth summit have led to great interest in the question of global environmental protection while it is recognized that international environmental agreements ieas are the means by which the earth s fragile environment is most likely to be protected this recognition has been recent hence there is very little formal research on the design and study of ieas as such in this paper i propose and describe a research agenda for the design and study of ieas very generally i propose that we frame the iea design question as a problem in mechanism design we will then be able to use inter alia the theory of common agency and the theory of hierarchies to generate interesting new theoretical and practical insights into the workings of ieas

making sense of nonbinding retail price recommendations we model retail price recommendations rprs as a communication device in vertical supply relations with private manufacturer information on production costs and consumer demand with static trade rprs are irrelevant and the equilibrium outcome is inefficient with repeated trade rprs can become part of a relational contract communicating private information from manufacturer to retailer that is indispensable for maximizing joint surplus we show that this contract is self enforcing if the retailer s profit is independent of production costs and punishment strategies are chosen appropriately the predictions of our analysis are consistent with the available empirical evidence

illegal immigration a supply side analysis abstract this paper analyzes the supply side determinants of illegal immigration using a three sector general equilibrium model of the source country agricultural liberalization raises illegal immigration while liberalization of the high tech sector reduces it in contrast capital mobility in the source country renders trade policy ineffective for controlling illegal immigration paradoxically increased enforcement by the host country may raise source country unskilled wages although illegal immigration falls finally under capital mobility a rise in the source country restrictions on capital inflow raises the level of illegal immigration and reduces the effectiveness of border enforcement efforts by the host country

advance delivery contracts revenue pools and price discrimination abstract this paper provides a rationale for the difference between contract and spot prices which is not based on risk aversion but on price discrimination we model the behaviour of a large buyer who discriminates between two groups of sellers by signing with one of the groups an advance delivery contract for part of his requirements his remaining purchases are executed on the spot market which may be supplied either by the other group or by both groups the buyer recoups the premium paid on contracted output through a lower price on the spot market

informative advertising competition or cooperation there are two main views of advertising the informative view and the persuasive view this thesis studies aspects of the informative view one aspect of interest is whether firms can benefit from collusion on advertising even though advertising is only informative if so will this enhance or lower welfare there are several reasons why firms may want to collude on adver tising first the legal field is tilted in favour of nonprice collusion second it is not at all obvious that collusion on price is more profitable than collusion on advertising and third the analyses of grossman and shapiro 1984 and others show that profits can be increased by restricting advertising in paper 1 we examine firms incentives to collude on advertising and the implications for welfare we find that collusion on advertising and competition on price is more profitable than competition on both price and advertising we also find that semicollusion on advertising is detrimental to welfare this suggests a need for monitoring especially since it is in the interest of firms to restrict price advertising we also compare semicollusion on price to semicollusion on advertising we find that in general semicollusion on price does not lead to higher profits compared to semicollusion on advertising hence we lend theoretical support to the empirical literature that consistently find evidence of semicollusion on advertising rather than on price another important issue concerns the effect on prices and profits of ad vertising only a subset of the product range many firms in particular those in the retail sector sell a wide variety of products but only advertise a few recent empirical evidence suggests that prices of unadvertised products are higher milyo and waldfogel 1999 theoretically little is known in paper 2 we study the effects of advertising only a subset of products we allow for both low and high differentiation and at the same time we explicitly model the advertising decision we find that the extend of differentiation between competing firms plays an important role in the analysis of loss leader pricing when firms sell products with the same reservation price loss leader pric ing obtains only when differentiation is low when products are less similar however price competition is less intense and as a result firms advertise prices above marginal cost our loss leader pricing results enable us to shed some light on the seemingly paradoxical empirical findings in the marketing literature that loss leader pricing fails to increase store traffic loss leader sales and hence to increase profits we also consider a different subject price discrimination although it is well understood that movements in the exchange rate have a bearing on firm profitability and hence affect firm behaviour the role of exchange rate variability in the firm s choice of the number of varieties to produce has to my knowledge not been explored this despite the fact that the product mix is an important aspect of firm strategy by tinkering with the number of varieties a firm can bolster its ability to extract consumer surplus in paper 3 we explore this issue we show that variability in the exchange rate induces the firm to vertically segment markets i e offer two varieties in each market this happens because exchange rate variability affects income dispersion and hence the firm s incentives to extract consumer surplus to better extract surplus the firm offers two price quality menus high quality variant priced high for top end surplus extraction and a low quality variety priced low to address market coverage concerns

the welfare effects of illegal immigration abstract this paper extends the work of ethier on illegal immigration by examining the optimal level of enforcement for the labor importing country in a two country model and by considering the effects of allowing capital mobility we derive a formula for the optimal level of enforcement against firms that hire illegal workers and show that the presence of enforcement costs makes the policy less efficient than a wage tax with capital mobility foreign workers gain from an increase in enforcement in the home country because capital is driven out of the home country

trading between agents for a better match this paper studies externalities that arise when agents can trade outcomes ex post i show that when agents can trade outcomes ex post principals are incentivized to contract with agents ex ante to reduce ex post transfers to outside agents with whom the principals do not directly contract this causes principals to offer agents piece rates that are inefficiently low and lower than the piece rates they would offer if trading was not allowed although trading reduces an agent s effort and could increase the agent s outside option of rejecting a principal s ex ante contract principals ultimately gain from allowing ex post trading because such trading results in outcomes that better match their tastes

competing manufacturers in a retail supply chain on contractual form and coordination it is common for a retailer to sell products from competing manufacturers how then should the firms manage their contract negotiations the supply chain coordination literature focuses either on a single manufacturer selling to a single retailer or one manufacturer selling to many possibly competing retailers we find that some key conclusions from those market structures do not apply in our setting where multiple manufacturers sell through a single retailer we allow the manufacturers to compete for the retailer s business using one of three types of contracts a wholesale price contract a quantity discount contract or a two part tariff it is well known that the latter two more sophisticated contracts enable the manufacturer to coordinate the supply chain thereby maximizing the profits available to the firms more importantly they allow the manufacturer to extract rents from the retailer in theory allowing the manufacturer to leave the retailer with only her reservation profit however we show that in our market structure these two sophisticated contracts force the manufacturers to compete more aggressively relative to when they only offer wholesale price contracts and this may leave them worse off and the retailer substantially better off in other words although in a serial supply chain a retailer may have just cause to fear quantity discounts and two part tariffs a retailer may actually prefer those contracts when offered by competing manufacturers we conclude that the properties a contractual form exhibits in a one manufacturer supply chain may not carry over to the realistic setting in which multiple manufacturers must compete to sell their goods through the same retailer

on the dampening of competition effect of exclusive dealing the authors compare and contrast the profit and welfare effects of exclusive dealing sales through a common retailer and vertical integration as did y j lin 1990 the authors find that imperfectly competitive manufacturers prefer to impose exclusive dealing on their retailers unlike lin the authors find that welfare is higher under exclusive dealing than when products are sold through a common retailer this finding suggests a new interpretation of the standard stations v united states 1949 antitrust case copyright 1993 by blackwell publishing ltd

margins and market shares pharmacy incentives for generic substitution we study the impact of product margins on pharmacies incentive to promote generics instead of brand names first we construct a theoretical model where pharmacies can persuade patients with a brand name prescription to purchase a generic version instead we show that pharmacies substitution incentives are determined by relative margins and relative patient copayments second we exploit a unique product level panel data set which contains information on sales and prices at both producer and retail level in the empirical analysis we nd a strong relationship between the margins of brand names and generics and their market shares in terms of policy implications our results suggest that pharmacy incentives are crucial for promoting generic sales

the impact of immigration enforcement on the u s farming sector this paper examines the eects of state and local immigration enforcement eorts on the u s farming sector we use variation in enforcement eorts generated by the timing of adoption of 287 g programs by state and county law enforcement agencies allowing local ocers

use of mip for planning temporary immigrant farm labor force abstract growers of many fruit and vegetable crops in the us are heavily reliant on hand labor to perform all of the necessary operations throughout the growing season when the current supply of domestic hand labor is insufficient growers can employ nonimmigrant foreign workers through the h 2a visa program to perform any additional agricultural tasks a common criticism of the program is that it is an onerous process that places the burden of proof on growers and requires them to demonstrate that there is a shortage of domestic workers this requires growers to start their employment decision making months before the growing season starts using limited knowledge about the upcoming season since no labor focused decision making tools exists for growers a mixed integer programming model is presented in this article which develops tactical level planting harvesting and labor acquisition schedules for use by growers to determine the appropriate number of h 2a workers needed this formulation is applied to an average farm in the yuma arizona region as a case study in addition the study is extended to show how the model can be employed as a regulatory tool to determine the economic impact from modifying the h 2a application policy this analysis in the yuma region demonstrated that increasing the h 2a program provides a positive economic incentive offset by moderate domestic job displacement

on the macroeconomic and welfare effects of illegal immigration abstract this paper uses a dynamic general equilibrium model with labor market frictions to explore the economic consequences of illegal immigration in the baseline model native workers and illegal foreign workers compete for jobs in the same market but serve as imperfect substitutes in production the calibrated model generates a u shaped relationship between long run domestic consumption and the population share of illegal immigrants after taking into account both consumption and leisure i found that an increase in illegal immigration can generate significant welfare gains for the natives the baseline model is then extended to include heterogeneous workers in the domestic population

lobbies delegation and the under investment problem in regulation abstract a time inconsistency problem in regulation often results in under investment especially where there are high sunk costs in network industries such as electricity gas telecommunications and water this paper provides a new perspective on this hold up problem facing the price regulation of a firm with market power where full commitment to a price regime is not possible we compare a political equilibrium based on a voting model with lobbying with a delegation equilibrium where a government can delegate to a particular type of pro or anti industry regulator our analysis suggests two possible ways in which we may observe price regulation that encourages socially optimal investment in the absence of externally imposed regulatory commitment first there is less than total transparency in which voters receive an optimal amount of information and second the decisions on price are delegated to a sufficiently but not excessively pro industry regulator

resale price maintenance and interlocking relationships dampening of interbrand as well intrabrand competition is often advanced to justify per se illegality of rpm we analyze this argument in a context where rival manufacturers distribute their products through the same competing retailers we show that rpm indeed limits the exercise of competition at both levels and can generate industry wide monopoly pricing the impact on prices depends on the extent of potential competition at either level as well as on the parties influence in determining the terms of the contracts our analysis sheds a new light on ongoing legal developments and is supported by recent empirical studies

advertising in a distribution channel conventional wisdom suggests that one of the goals of manufacturer advertising is to reduce the cross price elasticity between products make one s own and rivals products appear to be less substitutable in the eyes of consumers conventional wisdom also suggests that all else being equal retailers will be able to obtain better terms of trade from manufacturers the more substitutable are the manufacturers products it follows that retailers should be opposed to advertising that has the effect of reducing cross price elasticities and thus that manufacturer advertising can be a source of channel conflict we show that these conventional wisdoms need not hold when only some consumers are exposed to the advertising messages using a hotelling model of demand we show that 1 manufacturers can be worse off from advertising that reduces the cross price elasticities between their products 2 channel conflict need not arise even when the sole purpose of advertising is to affect cross price elasticities and 3 depending on its bargaining power a retailer can be better off when the manufacturers products are perceived to be less substitutable

foreign entry and bank competition abstract foreign entry and bank competition are modeled as the interaction between asymmetrically informed principals the entrant uses collateral as a screening device to contest the incumbent s informational advantage both better information ex ante and stronger legal protection ex post are shown to facilitate the entry of low cost outside competitors into credit markets the entrant s success in gaining borrowers of higher quality by offering cheaper loans increases with its efficiency cost advantage this paper accounts for evidence suggesting that foreign banks tend to lend more to large firms thereby neglecting small and medium enterprises the results also explain why this observed bias is stronger in emerging markets

vertical restraints and producers competition this paper examines the rationale for vertical restraints it shows that there are important circumstances under which these restrictions have significant anti competitive effects the paper focuses on the consequences of exclusive territorial arrangements among the retailers of two products which are imperfect substitutes such arrangements are shown to increase consumer prices under plausible conditions the increase in consumer prices is sufficiently large to more than offset the deleterious effects from double marginalization resulting from reduced competition among retailers the imposition of exclusivity provisions is may be part of a nash equilibrium among producers these results hold whether there are or are not franchise fees 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 item

what determines cartel success following george stigler 1964 many economists assume that incentive problems undermine attempts by firms to collude to raise prices and restrict output but the potential profits from collusion can create a powerful incentive as well theory cannot tell us a priori which effect will dominate whether or when cartels succeed is thus an empirical question we examine a wide variety of empirical studies of cartels to answer the following questions 1 can cartels succeed 2 if so for how long 3 what impact do cartels have 4 what causes cartels to break up we conclude that many cartels do survive and that the distribution of duration is bimodal while the average duration of cartels across a range of studies is about five years many cartels break up very quickly i e in less than a year but there are many others that last between five and ten years and some that last decades limited evidence suggests that cartels are able to increase prices and profits to varying degrees cartels can also affect other non price variables including advertising innovation investment barriers to entry and concentration cartels break up occasionally because of cheating or lack of effective monitoring but the biggest challenges cartels face are entry and adjustment of the collusive agreement in response to changing economic conditions cartels that develop organizational structures that allow them the flexibility to respond to these changing conditions are more likely to survive price wars that erupt are often the result of bargaining issues that arise in such circumstances sophisticated cartel organizations are also able to develop multipronged strategies to monitor one another to deter cheating and a variety of interventions to increase barriers to entry

excessive retailing at the bertrand equilibria in oligopolistic markets where competition is in prices producers may prefer to be represented by agents that sell their products even if those agents do not provide any direct services to promote the sale of the product and even if contracting is costly contracting with the agents serves as a medium to relieve competitive pressures in the product market the benefit that a single firm derives from contracting is an increasing function of the number of firms that have already contracted with agents hence if the contracting cost is relatively low there exists a unique equilibrium where all firms contract with agents

the multicontract organization this paper starts by discussing some nonstandard issues in organization theory bou nded rationality incomplete contracting and collusive behavior on which the rest of the paper focuses it then contrasts the comprehens ive contracting and game theoretic approaches to collusion and it li sts tentative conclusions and some unresolved issues

reduction of the value of information sharing as demand becomes strongly auto correlated information sharing has been identified in the academic literature as one of the most important levers to mitigate the bullwhip effect in supply chains a highly cited article on the bullwhip effect has claimed that the percentage inventory reduction resulting from information sharing in a two level supply chain when the downstream demand is autoregressive of order one is an increasing function of the autoregressive parameter of the demand in this paper we show that this is true only for a certain range of the autoregressive parameter and there is a maximum value beyond which the bullwhip ratio at the upstream stage is reduced and the percentage inventory reduction resulting from information sharing decreases towards zero we also show that this maximum value of the autoregressive parameter can be as high as 0 7 which represents a common value that may be encountered in many practical contexts this means that large benefits of information sharing cannot be assumed for those stock keeping units skus with highly positively auto correlated demand instead equally careful analysis is needed for these items as for those skus with less strongly auto correlated demand

nonlinear pricing in vertically related duopolies a vertically separated duopolistic market is analyzed in which manufacturers compete in wholesale price schedules and retailers in quantity under certainty there exists a continuum of equilibria the introduction of an uncertain demand parameter observed only by retailers dramatically reduces the set of equilibria quantity discounts emerge in markets with only moderately decreasing returns to scale in manufacturing and quantity competition downstream with additive shocks to demand the equilibria coincide with those of markets in which vertically integrated firms compete in supply functions before market uncertainty is resolved however generically equilibria in my model are not supply function equilibria

exclusion via non exclusive contracts we establish that non linear vertical contracts can allow an incumbent to exclude an upstream rival in a setting that does not rely on the exclusivity of the incumbent s contracts with downstream firms or any limits on distribution channels available to the incumbent or rival the optimal contract we describe is a three part quantity discounting contract that involves the payment of an allowance to a downstream distributor and a marginal wholesale price below the incumbent s marginal cost for sufficiently large quantities the optimal contract is robust to allowing parties to renegotiate contracts in case of entry l exclusion par le biais des contrats non exclusifs nous etablissons que des contrats verticaux non lineaires peuvent permettre a un titulaire d exclure un rival en amont dans un cadre qui ne de pend pas de l exclusivite des contrats du titulaire avec les entreprises en aval ou des limites sur les canaux de distribution disponibles pour le titulaire ou un rival le contrat optimal que nous decrivons est un contrat de rabais en trois parties base sur la quantite pre voyant le versement d une indemnite a un distributeur en aval et un prix de gros marginal inferieur au cout marginal de l operateur historique pour des quantites suffisamment importantes le contrat optimal est robuste si on permet aux parties de renegocier les contrats en cas d entree

an analysis of common sales agents this article presents an analysis of common sales agents based on their precommitment role when sellers are better informed about the products than potential buyers the author shows that an exclusive channel can create a cost owing to the inability of exclusive sellers to commit themselves to sales impartiality independent noncooperative firms may use common agents as a precommitment to sales impartiality the author demonstrates that common sales agency can arise as an equilibrium outcome in the absen ce of cost savings marketing advantages or the bernheim whinston collusion effect the analysis shows that common agency of this type can be welfare improving

the diffusion of adsl and costs of switching internet providers in the broadband industry evidence from the french case the innovative broadband internet industry is characterised by inertia phenomena in terms of technology choice as well as selection of internet service providers isps within the set of firms providing internet very often in europe the incumbent operator has the lion s share of end customers and supplies the dominant technology focusing on the french case this paper shows that although inertia on the supply side partly due to the regulation process in itself helps to explain the technology mix reached to date a more complete picture of the inertia can be obtained when we consider the existence of costs faced by customers when switching between isps we calculate these so called switching costs the closing section of this paper derives several implications in terms of policy

vertical mergers in multi product industries and edgeworth s paradox of taxation when a two product monopolist merges with one of its suppliers thus eliminating the double marginalization for one of its goods three qualitative effects on downstream prices can result the monopolist might 1 lower both prices 2 lower the price of the good for which the double marginalization is eliminated and raise the price of the other good or 3 raise both prices since some and even all prices can increase mergers of successive monopolists in multiproduct industries do not necessarily improve welfare this result differs from the single product case in which such mergers necessarily increase welfare copyright 1991 by blackwell publishing ltd

illegal aliens unemployment and immigration policy abstract this paper develops a simple two country model of illegal immigration in an attempt to examine the interaction among variables such as the stock of migrant labor the unemployment rates of the two economies and the rate of spending by the host country on the enforcement of its immigration restrictions the focus of the analysis is on the dynamics of immigration policy and on its role in determining the nature of the mechanism by which disturbances to the labor market of one country are transmitted to that of the other in the short run and in the long run

vertical contracting with informational opportunism we consider vertical contracting arrangements between a manufacturer and a retailing network when retailers have private information and the organization is run through bilateral contracts we highlight a new form of informational opportunism arising when the manufacturer manipulates information learned separately in each relationship we characterize the set of allocations robust to such opportunism by means of simple ex post incentive compatibility constraints those constraints limit the manufacturer s ability to use yardstick competition among retailers they simplify contracts and restore a rent efficiency trade off even with correlated information we show that sell out contracts are optimal under a wide range of circumstances

oligopolistic competition as a common agency game oligopolistic competition is analyzed in a complete information multi principal common agency framework where principals are firms supplying differentiated goods and the agent is a representative consumer we first propose a canonical formulation of common agency games and a parameterization of the set of equilibria based on the lagrange multipliers associated with the participation and the incentive compatibility constraints of each principal this is used to characterize the set of equilibria in the intrinsic and non intrinsic games the former includes the latter as well as the standard price and quantity equilibrium outcomes it may also include the collusive solution

bargining bundling and clout the portfolio effects of horizontal mergers we examine the output and profit effects of horizontal mergers between differentiated upstream firms in an intermediate goods market served by a downstream monopolist if the merged firm can bundle transfer pricing is efficient before and after the merger absent cost efficiencies consumer and total welfare do not change if the merged firm cannot bundle and its bargaining power is sufficiently high transfer pricing is inefficient after the merger absent cost efficiencies welfare typically falls we evaluate the profit effects of mergers for the case of two part tariff contracts rival firms gain lose from mergers that raise lower downstream prices contrary to conventional wisdom a merger that harms the retailer may increase welfare

why suggest non binding retail prices we provide a simple behavioural explanation of why manufacturers frequently announce non binding suggested retail prices for their products our model is based on the assumption that once the actual price for a product exceeds its suggested retail price the marginal propensity to consume suddenly jumps downward we show that this may induce a monopolistic retailer to set the price equal to the suggested retail price in equilibrium although the latter price is non binding this in turn leads to a shift of profits from the retailer to the manufacturer

managed trade with imperfect information central to the general agreement on tariffs and trade gatt agreement signed in 1947 by 23 nations was the reduction of tariffs this had the direct result of bringing down the average ad valorem tariff on industrial goods from over 40 in 1947 to under 4 by the time of the uruguay round in 1995 furthermore following the kennedy round of 1969 the objectives of the gatt and of its successor the world trade organization wto were expanded so as to help bring down nontariff barriers as well remarkably these reductions were achieved in the absence of any external enforcement mechanism intended to punish gatt wto violators commitments were kept only as long as nations continued to view adherence to the agreements as being in their mutual interest 2 it is precisely because the contracting parties of the gatt wto have made it their top priority to reduce trade distortions that the subject of safeguards as an exception to the general rule of liberalizing trade comes into play when governments know they can increase tariffs temporarily in the event of a surge in import volume they agree to negotiate a more substantial tariff reduction during the negotiation stage 3 the move toward special protection is motivated in part by the fact that volatility in trade flows has become a more important source of domestic disruption these special protection policy tools are typically used to limit the rate of import or export expansion from that which would occur in the absence of intervention they are aimed at mitigating the underlining changes in trade flows where the basic insight developed in the literature is consistent with different government objectives to this end corden 1974 has argued that countries rarely initiate protection for the purpose of capturing the terms of trade gains presumably because of the fear of future retaliation by their trading partners countries

the value of consumer choice and the decline in hmo enrollments i introduction and overview health insurance contracts may restrict consumers choice of medical provider in order to minimize moral hazard for example consumers who are insured for their marginal healthcare expenses have no incentive to enforce price discipline on their own in this case insurers may impose this discipline by restricting consumers choice of medical provider to those who offer competitive prices 1 this practice known as selective contracting sc may have other benefits as well including channeling consumers to efficient providers and achieving other efficiencies associated with partial vertical integration sc has been utilized by insurers both in the united states and abroad 2 however it is not a universal feature of health insurance contracts in part this is because reducing the choice set of medical providers imposes costs on consumers to the extent that consumers assign option value to choice capps dranove and satterthwaite 2003 for example sc was widely employed in the united states by health maintenance organizations hmos and other insurers in the 1990s and appears to have been an important cost control mechanism cutler mcclellan and newhouse 2000 robinson and phibbs 1989 however most private u s health insurers moderated their use of sc during the past decade at the same time that healthcare costs accelerated anecdotally a consumer and regulatory backlash against provider choice restrictions forced insurers to expand choice and largely abandon the practice blendon et al 1998 vita 2001 simultaneously hmo enrollments declined the purpose of this article is to explore the economic tradeoffs of sc with a particular focus on directly measuring the value that consumers assign to choice in medical markets i am interested in assessing whether the magnitude of any utility loss from choice restrictions can be offset by volume based price discounts that insurers may receive from hospitals my results bear on the larger question of whether an economic linkage can be drawn between consumers demand for choice and their apparent rejection of what is called tightly managed care they also have implications for many healthcare reform proposals that necessarily imply restrictions on the consumers choice sets i analyze health plan s sc of hospitals in the state of florida between 1999 and 2003 hospital sc restricts consumer choice in multiple ways including their choice of hospital in addition hospital choice restrictions imply restrictions over the use of specific physicians 3 i start by constructing hospital networks for each of a set of plan choices and then estimate a discrete choice model of health insurance demand conditional on each plan s restricted network for these purposes i use the capps dranove and satterthwaite 2003 measure of sc disutility that focuses on the option value of choice i employ several different discrete choice estimators to estimate the model including models with plan metropolitan statistical area msa fixed effects designed to control for unobserved plan attributes this provides me with estimates of disutility resulting from choice restrictions subsequently i project the estimated plan effects onto an instrumented value of plan price in order to estimate the price elasticity and also convert my disutility estimates into dollars my results show that consumers associated restrictive hospital networks with plan disutility during each of the years of the study period with choice elasticities that range from 0 10 to 0 32 in pooled estimates greater effects are obtained in 2003 using models where i allow the estimates to vary by year using my instrumental variables methodology to recover unbiased price coefficients i show that consumers associated a one standard deviation reduction in the size of a plan s hospital network with a reduction in plan value of between 62 and 118

when good news about your rival is good for you the effect of third party information on the division of channel profits the internet has led to a large number of third party sources that offer high quality information about firms s products at little or no cost to consumers as a result many of these sources have grown in popularity extending well beyond the usual reach of traditional third parties such asconsumer reports andkelly s blue book for example the online version ofedmunds offers at no cost to consumers information about new products existing products long term tests and buyers guides all relating to the automotive industry avweb com delivers weekly aviation news and new product reviews to its readers and a large number of websites follow developments on computer platforms such as the apple macintosh in this paper we analyze how the provision of third party information affects the division of profits in a multiproduct distribution channel to illustrate consider the competition between microsoft and apple in the operating systems os market and their channel relationship to compusa a retailer that sells both macs and windows based pcs consider two pieces of thirdparty information first suppose that cnet an internet technology site reviews the newest upgrade of the macos and writes that the new user interface is even easier to use than previously second suppose that an article in the technology section of thewall street journal notes that changes in apple s networking support now enable macs to be better integrated into pc networks these two pieces of information are similar in the sense that they both express good news about the macos and thus they both can be expected to benefit apple by increasing consumer demand for macs one might also expect that in both cases compusa will capture some of the gains that come from the increased demand for macs and that microsoft will lose because the good news about the macos will induce some consumers to choose macs over windows based pcs however we will show that this intuition is incorrect the two reviews can have surprisingly different implications for the profits of microsoft and compusa the reason is that the two reviews differ on one crucial dimension the group of customers for whom they are primarily relevant the cnet review talks about improvements in the customer interface precisely what apple score consumers care about thewall street journal review talks about compatibility with prevailing pc standards important to consumers who care relatively more about compatibility and who are thus more likely to prefer windows apple snoncore consumers we show that good news about the macos that is more relevant to apple s core consumers the cnet review benefits microsoft but harms compusa while good news about the macos that is more relevant to apple s noncore consumers thewall street journal review has the opposite effect it harms microsoft but benefits compusa stated more generally our main result is that when third party information affects consumers product valuations the type of information that induces the change is critical to understanding which firms gain and which firms lose in particular depending on the type of third party information we find that 1 a retailer can be harmed by good news about a product that it carries 2 a manufacturer can gain from good news about a rival s product and 3 good news about a product category need not benefit all the manufacturers in that category there are three novel features of the analysis first we derive the equilibrium division of profit among firms when a retailer sells the products of competing manufacturers and we have done so while placing few restrictions on the feasible set of contracts second we show how this equilibrium division of profit lends itself to a simple graphical interpretation that depicts which firms gain and which firms lose from third party information third we provide a taxonomy of information types and identify the key features of each type that cause profit incentives to vary in particular we conceptualize information as having three components namely 1 the products to which the information pertains 2 whether the information is positive or negative and 3 the consumers to whom the information is relevant we show that all three information components play a role in determining the change in each firm s profit our framework can also be used to analyze a variety of other settings of interest for example it can be used to analyze profit incentives when the retailer has bargaining power when there is downstream competition and when there are non information based changes in consumers valuations in addition our framework may be used both to analyze the effects on profits of persuasive advertising and to predict advertising content

a theory of hub and spoke collusion abstract we develop a model of hub and spoke collusion between a manufacturer and two retailers demand is stochastic and collusion between retailers is difficult the best collusive equilibrium is inefficient rotemberg and saloner 1986 in the hub and spoke collusive agreement retailers transmit their information about the state of demand to the supplier the supplier uses this information to adjust the wholesale price by organizing the collusion the supplier increases profits of the vertical chain we show that surprisingly this type of collusive agreement can under some conditions improve consumer welfare

the simple analytics of optimal growth with illegal migrants a clarification abstract this paper reexamines the welfare effects of illegal immigration studied by hazari and sgro the simple analytics of optimal growth with illegal migrants journal of economic dynamics and control 28 1 141 151 in contrast to their negative conclusion we obtain ambiguous welfare prediction which is due to the presence of two opposing effects at work a positive exploitation effect and a negative intertemporal effect with cobb douglas production technology we show that per capita domestic consumption rises in the presence of illegal migration

sleeping with the enemy should competitors share the same advertising agency the possibility of account conflicts is generally regarded as a very serious problem in the advertising industry the problem is that once an advertising agency works for a firm it learns private information which it can use strategically i e make available to the firm s competitors but in oligopolistic situations knowing more about a competitor may not necessarily be beneficial because the competitor may react to this knowledge similarly allowing the competitor to have more information may not necessarily be detrimental in fact the decision of whether to share the same agency depends on three effects which are identified here 1 the decision making framework effect 2 the strategic effect and 3 the uncertainty effect the first effect always favors sharing the same gency the direction of the latter two effects is ambiguous this ambiguity is resolved against the sharing of agencies when 1 the competitor s reaction to the firm s situation is especially harmful in that particular situation strategic effect and 2 the competitor s actions are increasingly harmful uncertainty effect

us immigration policies and dynamics of cross border workforce in agriculture given the contentious debate on immigration this study develops a dynamic model to analyse the effects of stricter border and domestic enforcement and streamlining the guest worker programme on cross border migration from mexico employment and production in us labour intensive and mexican agriculture and the us and mexican wage rates the model incorporates labour leisure decisions of mexican workers and labour market dynamics and linkages the findings show stricter border and domestic controls exacerbate the labour shortage problems and reduce the us agricultural production streamlining the guest worker programme provides a steady supply of farm workers and has negligible impact on the us wage

upfront payments and exclusion in downstream markets although upfront payments are often observed in contracts between manufacturers and retailers little is known about their competitive effects or the role retailers play in securing them in this article we consider a model in which two competing retailers make take it or leave it offers to a common manufacturer we find that upfront payments are a feature of equilibrium contracts and in all equilibria only one retailer buys from the manufacturer these findings support the claims of small manufacturers who argue that they are often unable to obtain widespread distribution for their products because of upfront payments copyright 2007 rand

dynamic common agency and investment the economics of movie distribution i introduction the management of vertical relationships is one of the fundamental issues addressed by contract and organization theorists how do contract choices interact with other strategic choices what are the consequences of vertical integration answers to these questions inform management strategy and public policy this article analyzes vertical relationships and strategic behavior in the movie distribution market vertical relationships in dynamic environments have been neglected and this article is the first to analyze an infinite horizon common agency model that considers vertical integration and investment the model has two distributors studios or independent distributors and one exhibitor theater distributors can invest each period before contracting with the exhibitor a distributor s investment stochastically improves its movies the probability of having hits rises dynamic strategic interaction is particularly important in the movie business and the infinite horizon model explains several facts that cannot be addressed with a static or two period model 1 in the model distributors avoid simultaneous new hit releases and hits stay in the theater longer than flops in reality release timing and run lengths are critical choices distributors often adjust release dates to avoid competing head to head chisholm 1999 krider and weinberg 1998 reardon 1992 and run lengths depend on early performance de vany and eckert 1991 de vany and walls 1996 furthermore in equilibrium distributors appropriate the lion s share of the marginal value created by their hits this occurs because hits are rare and the exhibitor s next best alternative is to show worse movies this is consistent with real world exhibition contracts which use nonlinear revenue sharing rules that give distributors higher shares of ticket revenue when revenue is high filson et al 2005 vertical integration one distributor owning the exhibitor has implications for strategies and welfare although the article emphasizes the impacts on strategies the welfare analysis is useful because it addresses a historical debate the paramount decrees of the late 1940s and early 1950s barred distributors from owning theaters in the 1980s the u s department of justice gave distributors permission to forward integrate again several did so including some of the largest ones de vany and eckert 1991 argue that the courts erred in the original decrees but to date no formal model supports or refutes their arguments in the infinite horizon model vertical integration is privately profitable but lowers industry value the combined value of the two firms that merge rises because they appropriate value from the remaining distributor but suboptimal investment occurs so the combined value of all three firms falls additional results depend on how integration affects bargaining power if the independent distributor maintains its bargaining power then the integrated distributor increases its investment and further delays releasing its hits the integrated distributor uses its hits as threats to appropriate value from the independent distributor in response the independent distributor reduces its investment however total industry investment never falls and it rises for a wide range of investment costs higher industry investment causes more hits to reach the theater and consumer surplus rises as a result integration may improve welfare in contrast if the independent distributor loses all of its bargaining power after integration then it reduces its investment to zero the integrated distributor still increases its investment but industry investment and welfare falls other strategies also change for example the integrated distributor tends to show its own new hits in preference to the independent distributor s because it does not need to delay releasing its hits to appropriate value

foreign aid and illegal immigration abstract we develop a two country model of illegal immigration we analyse the effect of foreign aid on illegal immigration and consider both exogenous and endogenous income repatriation in the former an increase in aid increases illegal immigration if the total amount of aid is small a transfer of resources from border control to aid increases illegal immigration when the total amount of aid is small under endogenous income repatriation aid has no effect on illegal immigration when the preferences of the immigrants and their family members are the same if the preferences are different aid may increase illegal immigration

vertical separation and horizontal mergers the author considers a duopoly setting consisting of two manufacturer retailer pairs in which the observable contract between each manufacturer retailer pair specifies a two part tariff without intraband competition the author shows that an upstream merger is anticompetitive under very general demand and cost conditions downstream merger is analyzed using linear demand and constant marginal cost and is shown not to be anticompetitive both with and without intraband competition and for both price and output competition between retailers in the premerger regime copyright 1995 by blackwell publishing ltd

buyer power and intrabrand coordination we analyze the competitive effects of vertical contracts in a contracting situation where rival retailers offer contracts to a manufacturer in contrast to bernheim and whinston 1998 who study the situation in which competing manufacturers offer contracts to a common retailer we find that two part tariffs even if contingent on exclusivity or not do not suffice to implement the monopolyoutcome richer arrangements including e g conditional fixed fees and upfront payments are thus required to internalize all contracting externalities the welfare implications are ambiguous on the one hand richer contracts ensure that no efficient retailer is excluded on the other hand they allow firms to maintain monopoly prices despite intrabrand competition simulations suggest that the latter effect may be more significant

the dampening of competition effect of exclusive dealing using the dampening of competition approach to understanding vertical relationships this paper shows that in the absence of intrabrand retailer competition firms earn greater profits using exclusive dealing the paper explains the frequent simultaneous appearance of exclusive dealing and exclusive territoriality the results are used to analyze the famous 1949 standard stations case the author concludes that the 1949 court did the right thing for a wrong reason copyright 1990 by blackwell publishing ltd

intermittent demand forecasting an empirical study on accuracy and the risk of obsolescence intermittent demand items account collectively for considerable proportions of the total stock value of any organization forecasting the relevant inventory requirements constitutes a very difficult task and most work in this area is based on croston s estimator that relies upon exponentially smoothed demand sizes and inter demand intervals this method has been shown to be biased and a number of variants have been introduced in the literature including the recently proposed tsb method that updates the demand probability instead of the demand interval and in doing so reacts faster to decreasing demand the tsb has been shown theoretically to be unbiased for all points in time but its empirical performance has not been investigated yet and this constitutes one of the objectives of our work more generally we explore the empirical performance of forecasting methods used in an intermittent demand context paying particular attention to the effects and implications of the smoothing constant values employed for updating purposes we do so by means of experimentation on large empirical datasets from the military sector and automotive industry the results enable insights to be gained into the sensitivity of the various methods forecasting and stock control performance to the smoothing constant values used the paper concludes with an agenda for further research

forecasting and inventory performance in a two stage supply chain with arima 0 1 1 demand theory and empirical analysis the arima 0 1 1 demand model has been analysed extensively by researchers and used widely by forecasting practitioners due to its attractive theoretical properties and empirical evidence in its support however no empirical investigations have been conducted in the academic literature to analyse demand forecasting and inventory performance under such a demand model in this paper we consider a supply chain formed by a manufacturer and a retailer facing an arima 0 1 1 demand process the relationship between the forecasting accuracy and inventory performance is analysed along with an investigation on the potential benefits of forecast information sharing between the retailer and the manufacturer results are obtained analytically but also empirically by means of experimentation with the sales data related to 329 stock keeping units skus from a major european superstore our analysis contributes towards the development of the current state of knowledge in the areas of inventory forecasting and forecast information sharing and offers insights that should be valuable from the practitioner perspective