what is a relationship worth repeated exchange and the development and deployment of relational capital organization scholars have highlighted the value of relationships in fostering effective exchange suggesting that repeated exchange creates a relational asset with latent value derived from elevated social connections norms and simple expectations of exchange continuity yet the empirical evidence supporting such claims remains largely indirect as a consequence few studies have been able to directly examine how contextual factors shape the accumulation of this relational asset or define its value in application we directly measure the value of relationships between suppliers and a large buyer using the buyer s choices in internet enabled procurement auctions to estimate the degree to which stronger relationship histories with suppliers increase willingness to pay for high volume commodity like parts our setting also allows us to examine how this willingness to pay for relationships is shaped by the social context in which they develop and by the exchange context in which they are subsequently depl

split award auctions for supplier retention to stay abreast of current supply market pricing it is common for procurement managers to frequently organize auctions among a pool of qualified suppliers the supply base sole awards can alienate losing suppliers and cause them to defect from the supply base to maintain the supply base and thereby control the high costs of finding and qualifying new suppliers buyers often employ split awards which in turn inflate purchase costs this results in a trade off that we investigate in an infinite horizon stationary setting in which the relative cost position of each supplier is randomly drawn in every period we characterize the optimal split award that minimizes long run costs purchasing and qualification and show that maintaining a constant supply base size using a qualify up to policy is optimal for the buyer we find that neither the extent of multisourcing nor the buyer s value of split awards compared with winner take all auctions are monotonic in the qualification cost and that split award auctions can increase ex ante system buyer and supplier benefits simultaneously to our knowledge this is the first paper studying split award auctions for supply base maintenance and it will hopefully galvanize further research on this important topic this paper was accepted by yossi aviv operations management

decision making by specialist luxury travel agents abstract we report an ethnographic study of specialist travel agents in luxury wildlife tourism agents consider 30 factors in 5 groups related to client destination attraction operator and agent they consider the groups in sequence rapidly and intuitively they are driven by a powerful regard for the high expectations of wealthy clients and a sense of responsibility to the clients but they assume authority over the decision they rely on personal experience with each particular place and tourism product and sell only what they know one of their skills is to project themselves into the client s perspective so as to imagine a trip in great detail this process contrasts strongly with the explicit deterministic approach used by retail travel agents in high volume lower priced subsectors where earnings are driven by commission and incentive structures for high end agents establishing long term relationships of mutual trust with individual clients and tour operators is paramount

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

awarding monopoly franchises the authors analyze how to award a monopoly franchise when the objective is to maximize expected consumers surplus net of transfer payments to the producer potential producers initially possess independent private information about uncertain production costs only the chosen producer subsequently observes realized production costs after awarding the franchise to the producer with the lowest expected costs prices are optimally set above realized marginal cost these ex post distortions foster more competitive bidding ex ante the distortions for any bid cost pair are invariant to the number of bidders n though expected distortions and profits decline with n copyright 1987 by american economic association

the rate of profit in the united states this paper traces the evolution of profitability in the united states from the turn of the century the first sectio n considers various measures of profitability over different sectors of the economy since 1947 the same downward tendency can be observed in all instances except the case of the after all tax rate of profit in the corporate sector the second part traces the trend in profita bility from 1900 to 1947 two periods of declining returns can be ide ntified over the last century the first after world war i and the se cond after 1966 between the two periods a recovery occurred during world war ii which was primarily absorbed in taxes copyright 1987 by oxford university press

manufacturer retailer channel interactions and implications for channel power an empirical investigation of pricing in a local market the issue of power in the marketing channels for consumer products has received considerable attention in both academic and practitioner journals as well as in the popular press our objective in this paper is to provide an empirical method to measure the power of channel members and to understand the reasons demand factors cost factors nature of channel interactions for this power we confine our analysis to pricing power in channels we use methods from the game theory literature in marketing on channel interactions to obtain the theoretical framework for our empirical model this literature provides us a definition of power one that is based on the proportion or percentage of channel profits that accrue to each of the channel members there can be a variety of possible channel interactions between manufacturers and retailers in channels the theoretical literature has examined some of these games for example choi 1991 examines how channel profits for manufacturers and retailer vary if channel interactions are either vertical nash or if they are stackelberg leaderfollower with either the manufacturer or the retailer being the price leader each of these three channel interaction games has different implications for profits made by manufacturers and retailers and consequently for the relative power of the channel members in contrast to the previous literature that has focused largely on the above three channel interaction games our model extends the game theoretic literature by allowing for a continuum of possible channel interactions between manufacturers and a retailer furthermore for a given product market we empirically estimate from the data where the channel interactions lie in this continuum more critically we obtain measures of how channel profits are divided between manufacturers and the retailer in the product market where a higher share of channel profit is associated with higher channel power we then examine how channel power is related to demand conditions facing various brands and cost parameters of various manufacturers in going from game theory based theoretical models of channel interactions to empirical estimation we use the new empirical industrial organization framework bresnahan 1988 as part of this structural modeling framework we build retail level demand functions for the various brands manufacturer and private label in a given product category given these demand functions we obtain optimal pricing rules for manufacturers and the retailer in determining their optimal prices manufacturers and the retailer account for how all the players in the channel choose their optimal prices that is we account for dependencies in decision making across channel members these dependencies are characterized by a set of conduct parameters which are estimated from market data the conduct parameters enable us to identify the nature of channel interactions between manufacturers and the retailer along the continuum mentioned previously in addition to the demand and conduct parameters manufacturers marginal costs are also estimated in the model these marginal cost estimates along with the manufacturer prices and retail prices available in our dataset enable us to compute the division of channel profits among the channel members hence we are able to obtain insights into who has pricing power in the channel in the empirical application of the model we analyze a local market for two product categories refrigerated juice and tuna in both categories there are three major brands the difference between them is that the private label has an insignificant market share in the tuna category our main empirical results show that the usual games examined in the marketing literature do not hold for the given data we also nd that the retailer s market power is very significant in both these product categories and that the estimated demand and cost parameters are consistent with the estimated pattern of conduct between the manufacturers and the retailer given the evidence from the trade press of intense manufacturer competition in these categories as well as the commodity nature of these products the result of retailer power appears intuitive

split award contracts with investment abstract this paper studies procurement contracts where a buyer can either divide full production among multiple suppliers or award the entire production to a single supplier we examine the effect of using multiple suppliers on investment incentives in a framework of generalized second price auctions with pre auction investment we show that the optimality of split award depends on the socially efficient number of firms at the investment stage when that number is greater than one sole sourcing is buyer optimal when that number is one split award lowers the buyer procurement cost

accumulation of capital and the foundation of the tendency of the rate of profit to fall especially since n okishio 1961 the theory of the tendency of the rate of profit to fall is controversial in marxist economics because the microeconomic foundations for it seem inadequate the okishian argument is based on a comparative static equilibrium approach it is indicated how within a dynamic disequilibrium framework of capital stratification these foundations may well be provided the rate of profit for innovating capitals may then rise while that for the economy as a whole may fall nevertheless tendencies are not trends the tendency of the rate of profit to fall seems to be manifest cyclically interconnected with other tendencies of accumulation copyright 1991 by oxford university press

air passenger duties as strategic tourism taxation abstract there has been a recent debate on the rationale and economic impacts of air passenger duties apds linked to puzzling empirical results on this topic we argue that an approach from strategic tourism taxation can improve our understanding of these results apd set by origin countries of tourists can be viewed as an instrument for extracting economic rents that would otherwise be retained by tourism destinations a theoretical model of strategic taxation between an origin and two destinations is developed to illustrate this idea we find that countries strategies may end up with winners and losers or with all parties facing welfare losses the game outcome depends on countries market shares of profits and the substitutability between tourism services provided by different destinations the findings suggest that the economic impacts of apds recently evaluated in the literature might be biased because of the omission of other countries potential tax reactions

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

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

simple auctions for supply contracts this paper studies an optimal procurement mechanism for a newsvendor like problem where the buyer s newsvendor s purchase price of the supplies is not fixed but determined through interaction with candidate suppliers the buyer has priors on the suppliers costs but does not know their costs exactly recent literature has shown how the buyer can implement the optimal procurement mechanism by announcing a revenue function specifying a payment for each quantity the buyer may purchase then auctioning off the supply contract with the specified revenue function in this paper we show that a simple modified version of the standard open descending auction for a fixed quantity is also an optimal mechanism for obtaining supplies what distinguishes this mechanism is its simplicity and familiarity for the suppliers open descending auctions are very easy to run and ubiquitous in practice whereas auctioning supply contracts with a specified revenue function is much less observed and more difficult to explain

structure action and outcomes the dynamics of power in social exchange two levels of power the structure of power in exchange networks and the strategic use of power resources by actors affect the frequency and distribution of exchange outcomes theories of power and exchange suggest alternative hypotheses about how structural power and strategic action are related to each other and to outcomes these are tested with data from a series of experiments in which power relations are based on control over rewards and punishments both structural power and its strategic use have substantial effects on exchange outcomes but structure and action are related only weakly to each other their relative effects on exchange outcomes vary with the base of power structural power has stronger effects on reward exchange and strategic action on punishment exchange the asymmetry of reward exchange in the relation the traditional measure of power use in powerldependence theory is affected by both social scientists have conceptualized power in various ways as a structural potential bierstedt 1950 wrong 1968 emerson 1962 as a process of behavioral or tactical influence rubin and brown 1975 michener and suchner 1972 tedeschi and bonoma 1972 and as the successful outcome of influence dahl 1957 mayhew gray and richardson 1969 simon 1957 i argue that a complete analysis of power must include all three facets understanding the relations among them requires integrating concepts at micro and macro levels of analysis alexander 1987 munch and smelser 1987 the macro level of power is the structure of control that provides the opportunities and constraints within which the micro level of power the strategic behavior of actors operates together structure and action produce outcomes of consequence for actors and relationships i investigate how structure and action affect the amount and distribution of exchange in power dependence relations previous research on power and exchange has studied only the relations between power structure the struc this work was supported by a grant from the national science foundation ses 84 19872 i am

an analysis of risk and return in the defense market its impact on weapon system competition with growing austerity pressures from the administration congress and the general public the government s procurement policy has called for increased use of dual source competition as a means of reducing acquisition costs in practice however this policy has produced mixed results the cause seems to be an inadequate understanding of the peculiarities of competition in the government s market this paper examines the risk and return available in the defense market and relates it to the industry s propensity to compete the results show that intelligent observation of the industry s capacity utilization rate would contribute to the development of a more efficient acquisition policy

coordination in split award auctions we analyze split award procurement auctions in which a buyer divides full production between two suppliers or awards all production to a single supplier and suppliers have private cost information an intriguing feature of split awards is that the equilibrium bids are implicitly coordinated because a split award price is the sum of offered split prices each supplier can unilaterally veto a split award by bidding very high for the split the need to coordinate is reflected in a split price that does not vary with private information we also explore conditions under which split award auctions may be preferred to winner take all auctions

newsvendor with multiple options of expediting we consider a manufacturer facing single period inventory planning problem with uncertain demand and multiple options of expediting the demand comes at a certain time in the future the manufacturer may order the product in advance with a relatively low cost she can order additional amount by expediting after the demand is realized there are a number of expediting options each of which corresponds to a certain delivery lead time and a unit procurement price the unit procurement price is decreasing over delivery lead time the selling price is also decreasing over time in this paper we assume that the manufacturer must deliver all products to the customer in a single shipment the problem can be formulated as a profit maximization problem we develop structural properties and show how the optimal solution can be identified efficiently in addition we compare our model with the classical newsvendor model and obtain a number of managerial insights

the economics of missing markets information and games part 1 out of equilibrium beliefs and out of equilibrium behaviour david m kreps the role of common knowledge assumptions in game theory adam brandenburger and eddie dekel repeated games a survey h sabourian information dynamics and equilibrium frank hahn part 2 the economics of parallel research partha dasgupta strategy variables and theories of industrial organization christopher doyle bargaining theory david canning imperfect competition and international trade k gatsios part 3 missing markets consequences and remedies david m newberry rational expectations information and asset markets margaret bray decision making in the presence of risk mark j machina part 4 theoretical modelling of banks and bank runs luca anderlini optimal multi unit auctions eric maskin and john riley labour contract theory tim worrall part 5 intertemporal general equilibrium models timothy j kehoe sunspots stephen burnell an introduction to nonlinear dynamics and its application to economics david kelsey part 6 some micro and macro implications of inventories j p thomas keynes s liquidity preference theory a suggested reinterpretation louis makowski

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

newsvendor competition under asymmetric cost information abstract we study the newsboy duopoly problem under asymmetric cost information we extend the lippman and mccardle 1997 of competitive newsboy to the case where the two firms are privately informed about their unit costs the market demand is initially split between two firms and the excess demand for each firm is reallocated to the rival firm we show the existence and uniqueness of a pure strategy equilibrium and characterize its structure the equilibrium conditions have an interesting recursive structure that enables an easy computation of the equilibrium order quantities presence of strategic interactions creates incentives to increase order quantities for all firm types except the type that has the highest possible unit cost consequently competition leads to higher total inventory in the industry however contrary to intuition this is only true when the firms are non identical a firm s equilibrium order quantity increases with a stochastic increase in the total industry demand or with an increase in his initial allocation of the total industry demand we demonstrate our model and results in an application in a dual sourcing procurement setting using data that obtained from a large manufacturing company finally we provide a full characterization of the equilibrium of the game for the special case of uniform demand and linear market shares

auctions for split award contracts the buyer of a homogeneous input divides his input requirements into two contracts that are awarded to different suppliers he uses a sequential second price auction to award a primary and a secondary contract with a fixed number of suppliers the buyer pays a higher expected price than with a sole source auction the premium paid to the winner of the secondary contract must also be paid to the winner of the primary contract as an opportunity cost when entry is endogenous we identify the conditions under which a secondary contract can increase the number of suppliers and lower the expected price

split awards procurement and innovation in many procurement settings it is possible for a buyer to split a production award between suppliers in this article we develop a model of split award procurement auctions in which the split choice is endogenous we characterize the set of equilibrium bids and allocations for optimizing agents in an environment in which suppliers are fully informed about each other s costs split award equilibria simultaneously exhibit strong collusive features and cost efficiency properties despite the former property of the equilibria upstream investment considerations may lead a buyer to prefer a split award auction format to a winner take all auction format

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

how ict shifts the power balance of tourism distribution channels abstract the restructuring process of the tourism sector and of the distribution channels caused by information and communications technologies ict may have altered the power positions in the channels in the literature the relationship between structure and power has been analyzed under the structure conduct performance paradigm and the structure conduct outcome framework the question is if the structure is antecedent or consequence of power balance in the channel our objective and contribution is to provide a common framework for both approaches by including the two different conceptualizations of the structure and analyzing their cause effect link with the power balance moreover we show that the two concepts of structure have a strong link with power balance but that the nature of the link might be very different market structure is exogenous and might be considered an antecedent and channel structure is endogenous suggesting that it is intimately interrelated with power balance and that the cause effect link works in the two directions

incomplete information and optimal market structure public purchases from private providers abstract market structure is endogenized in a normative model of public procurement featuring a social cost of profit product variety economies of scale and incomplete information about cost depending on parameters either sole sourcing or dual sourcing might be optimal however if the social cost of profit is positive but not too large incomplete information biases optimal market structure in favor of sole sourcing on the other hand this bias in favor of sole sourcing may be reversed if the social cost of profit is large an application to the publicly financed treatment for drug abuse motivates the analysis

revenue deficiency under second price auctions in a supply chain setting consider a firm called the buyer that satisfies its demand over two periods by assigning both demands to a supplier via a second price procurement auction call this the standard auction in the hope of lowering its purchase cost the firm is considering an alternative procedure in which it will also allow bids on each period individually where there can be either one or two winners covering the two demands call this the multiple winner auction choosing the multiple winner auction over the standard auction can in fact result in a higher cost to the buyer we provide a bound on how much greater the buyer s cost can be in the multiple winner auction and show that this bound is tight we then sharpen this bound for two scenarios that can arise when the buyer announces his demands close to the beginning of the demand horizon under a monotonicity condition we achieve a further sharpening of the bound in one of the scenarios finally this monotonicity condition allows us to generalize this bound to the t period case in which bids are allowed on any subset of period demands

price quoting strategies of an upstream supplier this paper studies an upstream supplier who quotes prices for a key component to multiple sellers that compete for an end buyer s indivisible contract at most one of the supplier s quotes may result in downstream contracting and hence produce revenue for her we characterize the supplier s optimal price quoting strategies and show that she will use one of two possible types of strategies with her choice depending on the sellers profit potentials relative to their uncertainties secure whereby she will always have business or risky whereby she may not have business addressing potential fairness concerns we also study price quoting strategies in which all sellers receive equal quotes finally we show that the supplier s optimal mechanism resembles auctioning a single quote among the sellers this paper can assist upstream suppliers in their pricing decisions and provides general insights into multitier supply chains pricing dynamics this paper was accepted by martin lariviere operations management