a principal agent problem with heterogeneous demand distributions for a carbon capture and storage system abstract mechanism design problems optimize contract offerings from a principal to different types of agents who have private information about their demands for a product or a service we study the implications of uncertainty in agents demands on the principal s contracts specifically we consider the setting where agents demands follow heterogeneous distributions and the principal offers a menu of contracts stipulating quantities and transfer payments for each demand distribution we present analytical solutions for the special case when there are two distributions each taking two discrete values as well as a method for deriving analytical solutions from numerical solutions we describe one application of the model in carbon capture and storage systems to demonstrate various types of optimal solutions and to obtain managerial insights

designing supply contracts contract type and information asymmetry this paper studies the value to a supplier of obtaining better information about a buyer s cost structure and of being able to offer more general contracts we use the bilateral monopoly setting to analyze six scenarios three increasingly general contracts wholesale pricing schemes two part linear schemes and twopart nonlinear schemes each under full and incomplete information about the buyer s cost structure we allow both sides to refuse to trade by explicitly including reservation profit levels for both for the supplier this is implemented through a cutoff policy we derive the supplier s optimal contracts and profits for all six scenarios and examine the value of information and of more general contracts our key findings are as follows first the value of information is higher under two part contracts second the value of offering two part contracts is higher under full information and third the proportion of buyers the supplier will choose to exclude can be substantial

flexible and risk sharing supply contracts under price uncertainty we study supply contracts for deterministic demand but in an environment of uncertain prices we develop valuation methodologies for different types of supply contracts a time inflexible contract requires the firm to specify not only how many units it will purchase but also the timing of the purchase a time flexible contract allows the firm to specify the purchase amount over a given period of time without specifying the exact time of purchase other than time flexibility the suppliers may offer quantity flexibility to the firm as well i e purchase quantities could be within a prespecified quantity window finally risk sharing features can be incorporated in the contract in terms of the purchase price that the firm eventually pays to a supplier within a prespecified price window the firm pays the realized price but outside of it the firm shares in an agreed way added costs or benefits given the structure of a supply contract we study the firm s decision when to purchase and how many units in each purchase such that the expected net present value of the purchase cost plus inventory holding cost is minimized we discuss optimal purchasing strategies for both time flexible and time inflexible contracts with risk sharing features other interesting results include the analysis of two supplier sourcing environments and the exploitation of quantity flexibility in such contracts our discussion illustrates how time flexibility quantity flexibility supplier selection and risk sharing when carefully exercised can effectively reduce the sourcing cost in environments of price uncertainty

managing online auctions current business and research issues the internet s computational power and flexibility have made auctions a widespread and integral part of both consumer and business markets though online auctions are a multi billion dollar annual activity with a growing variety of sophisticated trading mechanisms scientific research on them is at an early stage this paper analyzes the current state of management science research on online auctions it develops a broad research agenda for issues such as the behavior of online auction participants the optimal design of online auctions the integration of auctions into the ongoing operation of firms and the use of the data generated by online auctions to inform future trading mechanisms these research areas will draw from applied and theoretical work spanning management science economics and information systems

auctioning incentive contracts this paper draws a remarkably simple bridge between auction theory and incentive theory it considers the auctioning of an indivisible project among several fi rms the firms have private information about their future cost at th e bidding stage and the selected firm ex post invests in cost reduct ion the authors show that 1 the optimal auction can be implemented by a dominant strategy auction that uses information about both the first bid and the second bid 2 the winner faces a linear incenti ve contract 3 the fixed transfer to the winner decreases with his announced expected cost and increases with the second lowest announce d expected cost and 4 the share of cost overruns borne by the winn er decreases with the winner s announced expected cost copyright 1987 by university of chicago press

costs of smoking and attempts to quit using recent cross sectional state level data for the us this article examines smoking quitting behaviour by smokers in particular we uniquely focus on how the costs of smoking both direct and indirect costs induce smokers to quit results show that the price of cigarettes and home smoking restrictions are the primary thrusts behind smokers quit decision the indirect costs due to workplace smoking restrictions medical costs and a lack of insurance do not seem to significantly matter the habit forming effect of cigarettes is shown to lead to greater quit attempts policy implications are discussed

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

competition and outsourcing with scale economies scale economies are commonplace in operations yet because of analytical challenges relatively little is known about how firms should compete in their presence this paper presents a model of competition between two firms that face scale economies i e each firm s cost per unit of demand is decreasing in demand a general framework is used which incorporates competition between two service providers with price and time sensitive demand a queuing game and competition between two retailers with fixed ordering costs and pricesensitive consumers an economic order quantity game reasonably general conditions are provided under which there exists at most one equilibrium with both firms participating in the market we demonstrate in the context of the queuing game that the lower cost firm in equilibrium may have a higher market share and a higher price an enviable situation we also allow each firm to outsource their production process to a supplier even if the supplier s technology is no better than the firms technology and the supplier is required to establish dedicated capacity so the supplier s scale can be no greater than either firm s scale we show that the firms strictly prefer to outsource we conclude that scale economies provide a strong motivation for outsourcing that has not previously been identified in the literature

unemployment insurance and smoking using recent state level data from the united states this article examines new influences on cigarette demand in particular we uniquely focus on the effects of unemployment and health insurance coverage on smoking results show that higher cigarette prices a lack of health insurance and restrictions on smoking at home all lead to reduced smoking on the other hand literacy income unemployment workplace smoking restrictions smokeless tobacco taxes and tobacco producing states do not seem to have an appreciable impact the magnitude of the price elasticity of demand is greater than that found in the pre msa era policy implications are discussed

incentive effects favor nonconsolidating queues in a service system the principal agent perspective in this paper we study a service network in which an agency is responsible for satisfying a constraint on the expected waiting and service time experienced by customers however the agency does not render the actual service instead it serves to coordinate independently operated facilities the coordinating agency must devise a strategy for allocating compensation and customers to the self interested operators in order to minimize its own costs for a network of two facilities we model the facilities self interested capacity decisions as the solution to a game using this analytical framework we compare two types of customer allocation one from a common queue and one from separate queues our analysis shows that it can be in the best interest of the coordinating agency to adopt a separate queue allocation scheme instead of one based on a common queue although doing so sacrifices risk pooling benefits these can be more than offset by the stronger incentives that are created for the independent facilities

dynamic bargaining in a supply chain with asymmetric demand information we analyze a dynamic bargaining game in which a seller and a buyer negotiate over quantity and payment to trade for a product both firms are impatient and they make alternating offers until an agreement is reached the buyer is privately informed about his type which can be high or low the high type s demand is stochastically larger than the low type s in the dynamic negotiation process the seller can screen whereas the buyer can signal information through their offers and the buyer has an endogenous and type dependent reservation profit with rational assumptions on the seller s belief structure we characterize the perfect bayesian equilibrium of the bargaining game interestingly we find that both quantity distortion and information rent may be avoided depending on the firms relative patience and the seller may reach an agreement with either the high type or the low type first or with both simultaneously furthermore we explore our model to characterize the effect of demand forecasting accuracy on firm profitability we find that improved demand forecast benefits the buyer but hurts the seller when the buyer s forecasting accuracy is low however once the buyer s forecasting accuracy exceeds a threshold both firms will benefit from further improvement of the forecast this observation makes an interesting contrast to previous findings based on the one shot principal agent model in which improvement of forecasting accuracy mostly leads to a win lose outcome for the two firms and the buyer has an incentive to improve his forecasting accuracy only when it is extremely low this paper was accepted by yossi aviv operations management

design competition through multidimensional auctions this article studies design competition in government procurement by developing a model of two dimensional auctions wherefirms bid on both price and quality and bids are evaluated by a scoring rule designed by a buyer three auction schemes first score second score and second preferred offer are introduced and related to actual practices if the buyer can commit to a scoring rule in his best interest the resulting optimal scoring rule underrewards quality relative to the buyer s utility function and implements the optimal outcome for the buyer underfirst and second score auctions absent the commitment power the onlyfeasible scoring rule is the buyer s utility function under which 1 all three schemes yield the same expected utility to the buyer and 2 first and second score auctions induce the first best level of quality which turns out to be excessive from the buyer s point of view

diversification under supply uncertainty supply chain management is becoming an increasingly important issue especially when in most industries the cost of materials purchased comprises 40 60 of the total sales revenue despite the benefits cited for single sourcing in the popular literature there is enough evidence of industries having two three sources for most parts in this paper we address the operational issue of quantity allocation between two uncertain suppliers and its effects on the inventory policies of the buyer based on the type of delivery contract a buyer has with the suppliers we suggest three models for the supply process model i is a one delivery contract with all of the order quantity delivered either in the current period with probability or in the next period with probability 1 model ii is also a one delivery contract with a random fraction of the order quantity delivered in the current period the portion of the order quantity not delivered is cancelled model iii is similar to model ii with the remaining quantity delivered in the next period we derive the optimal ordering policies that minimize the total ordering holding and penalty costs with backlogging we show that the optimal ordering policy in period n for each of these models is as follows for x a n order nothing for vi n x a n use only one supplier and for x vi n order from both suppliers for the limiting case in the single period version of model i we derive conditions under which one would continue ordering from one or the other or both suppliers for model ii we give sufficient conditions for not using the second more expensive supplier when the demand and yield distributions have some special form for the single period version of models ii and iii with equal marginal ordering costs we show that the optimal order quantities follow a ratio rule when demand is exponential and yields are either normal or gamma distributed

incentives between firms and within this paper reviews the significant progress in agency theory i e the economic theory of incentives during the 1990s with an eye toward applications to supply transactions i emphasize six recent models in three pairs 1 new foundations for the theory of incentive contracts 2 new directions in incentive theory and 3 new applications to supply transactions by reviewing these six models i hope to establish three things first the theory of incentive contracts needed and received new foundations second new directions in incentive theory teach us that incentive contracts are not the only source of incentives finally and especially relevant to supply transactions the integration decision is an instrument in the incentive problem

auctioning supply contracts this paper studies a procurement problem with one buyer and multiple potential suppliers who hold private information about their own production costs both the purchase quantity and the price need to be determined an optimal procurement strategy for the buyer requires the buyer to first design a supply contract that specifies a payment for each possible purchase quantity and then invites the suppliers to bid for this contract the auction can be conducted in many formats such as the english auction the dutch auction the first priced sealed bid auction and the vickrey auction the winner is the supplier with the highest bid and is given the decision right for the quantity produced and delivered applying this theory to a newsvendor model with supply side competition this paper establishes a connection between the above optimal procurement strategy and a common practice in the retail industry namely the use of slotting allowances and vendor managed inventory also discussed in the newsvendor context are the role of well known supply contracts such as returns contracts and revenue sharing contracts in procurement auctions the scenarios where the buyer and suppliers may possess asymmetric information about the demand distribution and how the cost of supply demand mismatch is affected by supply side competition finally this paper compares the optimal procurement strategy with a simpler but suboptimal strategy where the buyer first determines a purchase quantity and then seeks the lowest cost supplier for the quantity in an auction

promised lead time contracts under asymmetric information we study the important problem of how a supplier should optimally share the consequences of demand uncertainty i e the cost of inventory excesses and shortages with a retailer in a two level supply chain facing a finite planning horizon in particular we characterize a multiperiod contract form the promised lead time contract that reduces the supplier s risk from demand uncertainty and the retailer s risk from uncertain inventory availability under the contract terms the supplier guarantees on time delivery of complete orders of any size after the promised lead time we characterize the optimal promised lead time and the corresponding payments that the supplier should offer to minimize her expected inventory cost while ensuring the retailer s participation in such a supply chain the retailer often holds private information about his shortage cost or his service level to end customers hence to understand the impact of the promised lead time contract on the supplier s and the retailer s performance we study the system under local control with full information and local control with asymmetric information by comparing the results under these information scenarios to those under a centrally controlled system we provide insights into stock positioning and inventory risk sharing we quantify for example how much and when the supplier and the retailer overinvest in inventory as compared to the centrally controlled supply chain we show that the supplier faces more inventory risk when the retailer has private service level information we also show that a supplier located closer to the retailer is affected less by information asymmetry next we characterize when the supplier should optimally choose not to sign a promised lead time contract and consider doing business under other settings in particular we establish the optimality of a cutoff level policy finally under both full and asymmetric service level information we characterize conditions when optimal promised lead times take extreme values of the feasible set yielding the supplier to assume all or none of the inventory risk hence the name all or nothing solution we conclude with numerical examples demonstrating our results

auctions with endogenous quantity this article studies auctions in which several sellers compete for the right to sell to a market characterized by a negatively sloped demand curve in this environment the quantity traded becomes endogenous this effect leads to three results concerning the outcomes of open versus first price sealed bid auctions first an open auction yields a higher expected price than does sealed bidding second and more important the open auction captures less of the potential gains from trade than does the sealed bid auction third for broad classes of demand curves the efficiency gains from switching to sealed bids from an open auction accrue to both sellers and the buyer so that all concerned parties would agree to the change a direct application of the theory is to procurement the heavy use of sealed bidding in procurement is seen as rational in light of these results auction models with endogenous quantity could be an alternative to price setting oligopoly models for the study of price formation in general for the latter impose strong information requirements on agents and yield only equilibrium price vectors not equilibrium processes for determining prices

time based procurement this study investigates the design of a time based procurement contract when a supplier possesses private information about intrinsic completion time and may choose to exert time reduction effort we first derive the optimal complex contract for the buyer and then evaluate the performance of a simple fixed price and fixed time fpft contract our analysis shows that the structure of the optimal time based contract and the performance of an fpft contract depend largely on time reduction forms specifically if time reduction follows a multiplicative model the optimal contract induces the intrinsically slow supplier to reduce time and offers a fixed payment to the intrinsically fast supplier this result is opposite to what could occur when time reduction follows an additive model we also show that in a specific multiplicative model the fpft contract achieves at least eight ninth of the available surplus for the buyer whereas the performance of an fpft contract deteriorates dramatically in an additive model in response to this underperformance we then propose an enhanced linear contract and demonstrate that using this contract the buyer loses no more than one sixteenth of the available surplus our results shed light on the important effect of time reduction forms on time based contract design

a supplier s optimal quantity discount policy under asymmetric information in the supply chain literature an increasing body of work studies how suppliers can use incentive schemes such as quantity discounts to influence buyers ordering behaviour thus reducing the supplier s and the total supply chain s costs various functional forms for such incentive schemes have been proposed but a critical assumption always made is that the supplier has full information about the buyer s cost structure we derive the optimal quantity discount policy under asymmetric information and compare it to the situation where the supplier has full information

total cost procurement auctions impact of suppliers cost adjustments on auction format choice we consider sealed and open bid total cost procurement auctions where two attributes are used for contract award decisions price which is bid by the supplier and a fixed cost adjustment which is included by the buyer to capture nonprice factors such as logistics costs suppliers know only their own true production cost and their own cost adjustment and the buyer does not know the suppliers true production costs but does know all suppliers cost adjustments which she herself sets in order to make an informed total cost decision the buyer who seeks to minimize her total price and cost adjustment procurement cost can choose to run a first price sealed bid auction where suppliers bids are affected by their beliefs about each other s total costs or a descending open bid auction where only the actual realizations of suppliers total costs drive the auction outcome we characterize the buyer s choice between the two formats as a threshold decision over suppliers cost adjustments and analyze the effect of supplier beliefs on her decision we also study the impact of additional suppliers on the buyer s decision the effect of correlation between suppliers production costs and their cost adjustments and additive as well as multiplicative total cost functions the results suggest that procurement managers can use their evaluations of suppliers cost adjustments to make better auction format decisions

competition for procurement contracts with service guarantees we consider a market with two suppliers and a set of buyers in search of procurement contracts with one of the suppliers in particular each buyer needs to process a certain volume of work and each supplier s ability to process the customers requests is constrained by a production capacity the procurement contracts include guarantees that the products will be available when needed and the buyers select a supplier based on their service delivery offers the suppliers are modeled as make to stock queues and compete for the buyers business the main objective of this paper is to determine how the procurement contracts are established between buyers and suppliers because each buyer selects a single supplier to establish the sourcing relationship the game fails to have a pure strategy nash equilibrium instead an equilibrium is defined as the limit equilibrium of some discrete action games

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

the governmental composition of the insurance costs of smoking abstract the estimated health risks from smoking have significant external financial consequences for society studies at the national level indicate that cigarettes are self financing since external costs such as those due to illnesses are offset by cost savings associated with premature death chiefly pension costs this paper extends this analysis to all 50 states and considers the costs considered in the state attorneys general suits against the cigarette industry cigarettes are always self financing from the standpoint of costs to each state the extent of the cost savings is less than at the federal level however smokers higher medical costs are outweighed by reduced nursing home expenditures lower pension costs and excise taxes where each of these factors alone usually exceeds the medical cost effect

pricing games and impact of private demand information in decentralized assembly systems this paper analyzes decentralized assembly systems under asymmetric demand information and sequential contracting we reveal new insights on the value of contract type price only versus complex demand information complete versus asymmetric and contract sequence first mover versus second mover to different players our results for the basic model show the following 1 complex contracts increase the suppliers aggregate profit however individual suppliers do not necessarily benefit from a complex contracting equilibrium we identify the conditions under which each supplier benefits from such an equilibrium 2 eliminating information asymmetry is not always beneficial for the suppliers because obtaining information might bring only marginal value and hence might not be realistically justified furthermore a downstream supplier might prefer information asymmetry to complete information especially when demand variability is moderate 3 unless there is a high demand risk the first mover advantage is prevalent when the assembler is a price taker we extend our basic model to analyze two additional scenarios first we study cases where the suppliers may offer contracts of different complexity beyond enriching our understanding of contract choice in decentralized assembly systems such variations enhance the analysis beyond the standard methodology of principal agent models and utilize solution techniques from optimal control second we analyze the situation where the suppliers may possess different levels of information on demand under complex contracts we show that an upstream supplier always benefits from a downstream supplier s superior information however the additional information might decrease the downstream supplier s profit especially when the forecast variability is low compared to the total demand variability in the system our results for the basic model and its extensions confirm that studying interactions between suppliers specifically under different contract types and information structures in assembly systems presents rich opportunities for future research

optimal service speeds in a competitive environment this is a study of the economic behavior of vendors of service in competition a simple model with two competing exponential servers and poisson arrivals is considered each server is free to choose his own service rate at a cost per time unit that is strictly convex and increasing there is a fixed reward to a server for each customer that he serves the model is designed to study one specific aspect of competition namely competition in speed of service as a means for capturing a larger market share in order to maximize long run expected profit per time unit a two person strategic game is formulated and its solutions are characterized depending on the revenue per customer served and on the cost of maintaining service rates the following three situations may arise i a unique symmetric strategic nash equilibrium in which expected waiting time is infinite ii a unique symmetric strategic equilibrium in which expected waiting time is finite and iii several nonsymmetric strategic equilibria with infinite expected waiting time an explicit expression for the market share of each server as a function of the service rates of the two servers is also given

contingent payment auction mechanism in multidimensional procurement auctions abstract this paper considers the auctioning of an indivisible project among several suppliers who hold private information about their own efficiency type both quality and price need to be determined different from scoring auctions we present a new method i e contingent payment auction mechanism cpam which can effectively deal with the optimal procurement strategy in multidimensional procurement auctions cpam can implement the optimal mechanism for the buyer and is thus optimal among all possible procurement strategies cpam implies that the buyer should first design and announce a contingent payment function that specifies a payment for each possible quality level before the bidding begins compared to scoring auctions cpam has some advantages it does not require a special form of scoring rule and can be generalized in a more broad auction formats furthermore it can help us to solve the ex post moral hazard problem we consider two kinds of cpam for the cpam i is sensitive to different auction formats we come up with cpam ii which can improve the performance of cpam i broadly speaking cpam integrates the idea of dimension reduction from scoring auction into that of incentive contract design from contract theory to solve the problem of ex post moral hazard

procuring fast delivery sole sourcing with information asymmetry this paper studies a queuing model in which a buyer sources a good or service from a single supplier chosen from a pool of suppliers the buyer seeks to minimize the sum of her procurement and operating costs the latter of which depends on the suppliers lead time the selected supplier can regulate his lead time but faster lead times are costly although the buyer selects the supplier to source from possibly via an auction and dictates the contractual terms the buyers bargaining power is limited by asymmetric information the buyer only has an estimate of the suppliers costs while the suppliers know their costs precisely we identify a procurement mechanism that minimizes the buyers total cost procurement plus operating this mechanism is not simple it is a numerically derived nonlinear menu of contracts therefore we study several simpler mechanisms e g one that charges a late fee and one that specifies a fixed lead time requirement no menus no nonlinear functions we find that simple mechanisms are nearly optimal generally within 1 of optimal because asymmetric information conveys significant protection to the supplier i e the supplier is able to retain most of the benefit of having a lower cost renegotiation is another concern with the optimal mechanism because it does not minimize the supply chains cost the firms can be both better off if they throw away the contract and start over interestingly we find that the potential gain from renegotiation is relatively small with either the optimal or our simple mechanisms we conclude that our simple mechanisms are quite attractive along all relevant dimensions buyers performance supply chain performance simplicity and robustness to renegotiation

dynamic supplier contracts under asymmetric inventory information in this paper we examine a supply chain in which a single supplier sells to a downstream retailer we consider a multiperiod model with the following sequence of events in period t the supplier offers a contract to the retailer and the retailer makes her purchasing decision in anticipation of the random demand the demand then unravels and the retailer carries over any excess inventory to the next period unmet demand is lost in period t 1 the supplier designs a new contract based on his belief of the retailer s inventory and the game is played dynamically we assume that short term contracts are used i e the contracting is dynamically conducted at the beginning of each period we also assume that the retailer s inventory before ordering is not observed by the supplier this setting describes scenarios in which the downstream retailer does not share inventory sales information with the supplier for instance it captures the phenomenon of retailers distorting past sales information to secure better contracting terms from their suppliers we cast our problem as a dynamic adverse selection problem and show that given relatively high production and holding costs the optimal contract can take the form of a batch order contract which minimizes the retailer s information advantage we then analyze the performance of this type of contract with respect to some useful benchmarks and quantify the value of prudent contract design and the value of inventory information to the supply chain markovian adverse selection models in which the state and action in a period affect the state in the subsequent period are recognized as theoretically challenging and are relatively less understood we take a nontrivial step towards a better understanding of such models under short term contracting

optimal procurement mechanisms we analyze optimal mechanisms in environments where sellers are privately informed about quality a methodology is provided for deriving conditions that are necessary and sufficient to determine when two simple trading environments maximize either social or private surplus the commonly used auction mechanism is frequently inefficient in procurement environments often the optimal mechanism is simply to order potential suppliers and to tender take it or leave it offers to each sequentially we completely characterize the environments in which either mechanism is optimal in doing so we develop a general methodology that determines when and if a given trading institution is optimal

sole versus dual sourcing in stochastic lead time s q inventory models when supply lead times are uncertain the simultaneous procurement from two sources offers savings in inventory holding and shortage costs economies are achieved if these savings outweigh the increase in ordering costs in this paper we analyze dual sourcing in the context of the reorder point order quantity inventory model with constant demand and stochastic lead times and compare it with single sourcing two cases are studied using the uniform and the exponential distributions which may be thought of as two extreme ways of representing stochastic lead times in our two vendor model the order quantity is split equally between the two vendors and the split orders are placed simultaneously when the inventory position reaches the reorder level a comparison of the total expected costs suggests that when the uncertainty in the lead times is high and the ordering costs are low dual sourcing could be cost effective

does pooling purchases lead to higher profits consider two buyers facing uncertain demands who need to purchase a common critical component from a powerful sole source supplier if the two buyers pool their demands and purchase from the supplier as a single entity will they necessarily earn higher profits than purchasing separately we show that when a powerful supplier extracts profits from the buyers through optimal contract design the demand variability reduction achieved by pooling can harm the buyers because it makes extracting profits easier for the supplier we characterize cases when pooling is disadvantageous and also provide insights into when it is still advantageous our result is in contrast to the case where the price of the component is exogenous typically assumed in most of the pooling literature in which case pooling demands is always beneficial for the buyers

can yardstick competition reduce waiting times yardstick competition is a regulatory scheme for local monopolists e g hospitals where the monopolist s reimbursement is linked to performance relative to other equivalent monopolists this re

contracting with an urgent supplier under cost information asymmetry abstract we investigate a contract setting problem faced by a manufacturer who can procure major modules from an overseas supplier as well as a local supplier the overseas supplier is prime and offers quality products whereas the local supplier is viewed only as a backup and its products are inferior in quality as the local supplier needs to put in additional effort to fulfill the urgent orders it is difficult for the manufacturer to estimate this urgent supplier s production cost this asymmetric cost information becomes an obstacle for the manufacturer in managing the urgent supplier in this paper we study two types of contingent contracts one is the common price only contract and the other is a contract menu consisting of a transfer payment and a lead time quotation we construct a stackelberg game model and evaluate how the involvement of an urgent supplier with private cost information affects performances of the prime supplier and the manufacturer in different scenarios with or without the urgent supplier under different contingent contracts we also conduct numerical experiments to show how the parameters of the contracts affect profits of the manufacturer

multiple sourcing and procurement process selection with bidding events we examine the procurement process selection problem of a large industrial buyer who employs reverse auctions for awarding procurement contracts we contrast two classes of commonly used strategies under multiple sourcing namely single stage reverse auctions and two stage processes where price quantity adjustments between the buyer and the suppliers follow a first stage reverse auction deriving bounds of efficiency for these two classes of procurement processes under convex supplier production costs we present insights on the conditions under which each class is preferable for the buyer considering the effect of contracting and processing costs a single stage process is likely to be preferable to a two stage process when the number of bidding suppliers is high especially when capacity is rigid a two stage process with one information transfer in the second stage may be the preferred procurement mode when production is highly scalable i e when the marginal production cost increase with increased production is small when the number of suppliers is low the effect of a decrease in production scalability depends on the current scalability level for high scalability levels a decrease in production scalability may decrease the efficiency of both single stage and simple two stage processes whereas for low scalability levels it tends to increase efficiency for both of these process classes a decrease in production costs makes employing simple processes more attractive when production is highly scalable or when supplier capacity is rigid for intermediate production scalability however a cost decrease may make employing two stage processes with multiple information transfers in the second round preferable for the buyer

are remittances insurance evidence from rainfall shocks in the philippines several facts motivate this study first life in developing countries is prone to many kinds of risk such as crop and income loss due to natural disasters weather insect infestations and fire and civil conflict second international migration and remittance flows are substantial and growing between 1965 and 2000 individuals living outside their country of birth grew from 2 2 to 2 9 percent of the world population totaling 175 million people in 2000 the remittances that these migrants send to their countries of origin are an important but poorly understood type of international financial flow this article examines a mechanism for coping with shocks ex post on which previous micro level studies have not focused remittances from family members overseas at the international level it is commonly posited that remittance flows from overseas buffer economic shocks in migrants home countries but there have been relatively few empirical tests of this claim with micro level household data related research on the role of domestic migration in pooling risk within extended families includes lucas and stark 1985 rosenzweig and stark 1989 and paulson 2000