repeated moral hazard and contracts with memory the case of risk neutrality we consider a repeated moral hazard problem where both the principal and the wealth constrained agent are risk neutral in each of two periods the agent can exert unobservable effort leading to success or failure incentives provided in the second period act as carrot and stick for the first period so that the effort level induced in the second period is higher after a first period success than after a failure if renegotiation cannot be prevented the principal may prefer a project with lower returns i e a project may be too good to be financed or similarly an agent can be overqualified this article offers a new perspective on dynamic moral hazard problems consider a riskneutral principal who can hire a risk neutral but wealth constrained agent the agent can exert unobservable effort which increases the likelihood of success in the one shot problem there is a well known trade off between effort incentives and rent extraction which leads to a downward distorted effort level compared to the first best solution we extend the standard model by assuming that there is a second period in which the principal can make an investment to continue the project and the agent can again exert unobservable effort it turns out that there are several interesting insights that so far have escaped the literature on repeated moral hazard which was focused on the case of risk averse agents in particular if the principal can commit not to renegotiate the second period incentives can be used to partially circumvent the limited liability constraint in the second period the principal induces the agent to choose a particularly high effort level following a first period success and a particularly low effort level following a first period failure the prospect of a higher second period rent following a first period success motivates the agent to exert more effort in the first period i e rents in the second period act as reward and punishment for the first period it should be emphasized that we assume no technological impact of a first period success or failure on the second period technology nevertheless an optimal dynamic contract exhibits memory hence if an outsider observed today a principal agent pair that was successful and another identical pair that was not successful he would be right to predict that the first pair also is more likely to succeed tomorrow in other words a serial correlation across periods which we sometimes refer to as a hot hand effect is generated endogenously merely based on incentive considerations 2

assortment planning and inventory decisions under stockout based substitution we present an efficient dynamic programming algorithm to determine the optimal assortment and inventory levels in a single period problem with stockout based substitution in our model total customer demand is random and comprises fixed proportion of customers of different types customer preferences are modeled through the definition of these types each customer type corresponds to a specific preference ordering among products a customer purchases the highest ranked product according to his type if any that is available at the time of his visit to the store stockout based substitution we solve the optimal assortment problem using a dynamic programming formulation we establish structural properties of the value function of the dynamic program that in particular help to characterize multiple local maxima we use the properties of the optima to solve the problem in pseudopolynomial time our algorithm also gives a heuristic for the general case i e when the proportion of customers of each type is random in numerical tests this heuristic performs better and faster than previously known methods especially when the mean demand is large the degree of substitutability is high the population is homogeneous or prices and or costs vary across products

are consumption taxes really better than income taxes abstract we use political equilibrium theory and the neoclassical growth model to compare consumption and income tax systems if government outlays are used for redistribution through transfers then steady state equilibria in societies that use income taxes are not necessarily worse in welfare terms and may even be better income taxes are attractive precisely because they are more distortionary since this implies low equilibrium transfer levels we also find that switching tax systems typically does not benefit the median voter moreover a change from income to consumption taxes may make everybody worse off

tournaments with midterm reviews in many tournaments investments are made over time the question whether to conduct a review once at the end or additionally at points midway through the tournament is a strategic decision if the latter course is chosen then the designer must establish both a rule for aggregating the results of the different reviews and a rule for determining compensations we first study the case of a fixed exogenously given prize and then extend the analysis to the case where the prize is not fixed but may vary with the tournament s outcome it is shown that 1 it is always optimal to assign a higher weight to the final review 2 this weight increases with the dominance of the first stage effort in determining the final review s outcome when the prize is not fixed the optimal design generates an asymmetric tournament in the second stage that favors the winner of the midterm review

buyer search costs and endogenous product design buyer search costs for price are changing in many markets through a model of buyer and seller behavior i consider the effects of changing search costs on prices both when product differentiation is fixed and when it is endogenously determined in equilibrium if firms cannot change product design lower buyer search costs for price lead to increased price competition however if product design is a decision variable lower search costs for price may also lead to higher product differentiation which decreases price competition in this case the overall effect of lower buyer search costs for price may even be higher prices lower social welfare and higher industry profits the result is especially interesting because recent technological changes such as internet shopping can affect the market structure through lowering buyer search costs

transparency of information and coordination in economies with investment complementarities how do public and private information affect equilibrium allocations and social welfare in economies with investment complementarities and what is the optimal transparency in the information conveyed for example by economic statistics policy announcements or news in the media we first consider an environment where the complementarities are weak so that the equilibrium is unique no matter the structure of information an increase in the precision of public information may have the perverse effect of increasing aggregate volatility nevertheless as long as there is no value to lotteries welfare unambiguously increases with an increase in either the relative or the absolute precision of public information hence full transparency is optimal this is because more transparency facilitates more effective coordination which is valuable from a social perspective on the other hand when complementarities are strong enough that multiple equilibria are possible more transparency permits the market to coordinate more effectively on either the bad or the good equilibrium in this case constructive ambiguity becomes optimal if there is a high risk that more transparency will lead to coordination failures this abstract was borrowed from another version of this item

contests with multiple rounds this paper studies contests where players have the flexibility to add to their previous efforts after observing their rivals most recent effort in an intermediate stage it is found that 1 contrary to previous findings the stackelberg outcome where the underdog leads and the favorite follows cannot be an equilibrium 2 there are multiple subgame perfect equilibria all occurring on the underdog s usual one shot reaction function in between and including the one shot cournot nash and stackelberg outcome with the favorite leading 3 the total equilibrium effort is typically greater than or equal to what a one shot cournot nash play would predict and 4 in settings where players can choose whether or not to disclose their early actions to the rival both the favorite and the underdog disclose in equilibrium applications in sports lobbying and r d races are discussed

transparency and economic policy we provide a two period model of political competition in which voters imperfectly observe the electoral promises made to other voters imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary government spending is larger than in a world of perfect observability transfers are partly financed through government debt and the size of the debt is higher in less transparent political systems the model provides an explanation of fiscal churning it also predicts that groups whose transfers are less visible to others receive higher transfers and that imperfect transparency of transfers may lead to underprovision of public goods from the policy perspective the main novelty of our analysis is a separate evaluation of the transparency of spending and the transparency of revenues we show that the transparency of the political system does not unambiguously improve efficiency transparency of spending is beneficial but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending

multiple product firms a nested logit approach this paper proves the existence of a symmetric equilibrium with multiproduct firms using a nested logit model of demand the demand model is parameterized by two variables that characterize different dimensions of preference for variety these reflect intragroup heterogeneity and intergroup heterogeneity a group or nest being the set of products produced by a firm there are then two dimensions to market performance the total number of firms and the range of products produced per firm it is shown that the market equilibrium involves an excessive number of firms but each firm provides too few products copyright 1992 by blackwell publishing ltd

learning from coarse information biased contests and career profiles an organization s promotion decision between two workers is modelled as a problem of boundedly rational learning about ability the decision maker can bias noisy rank order contests sequentially thereby changing the information they convey the optimal final period bias favours the leader reinforcing his likely ability advantage when optimally biased rank order information is a sufficient statistic for cardinal information the leader is favoured in every period in other environments bias in early periods may i favour the early loser ii be optimal even when the workers are equally rated and iii reduce the favoured worker s promotion chances this paper presents a model of boundedly rational learning by an organization the aims are to represent in a simple form the costs of gathering processing or transmitting information and to analyse their implications for the procedures selected to handle information as well as for the decisions actually made like other recent work on the internal organization of firms this work explores to what extent organizational structure and behaviour as well as organizational performance can be explained by adaptation to the costs associated with information in the learning model we formulate the decision maker not only selects a rule specifying what action to take as a function of his observations but also chooses sequentially the information partitions generating those observations this general problem is interpreted in the context of an organization which needs to make an important promotion decision and which attempts to maximize the value of the information generated during the observation periods that precede the decision one of the motivations for this analysis was the finding by organizational sociologists that earnings and promotions in the later stages of a worker s career are strongly correlated with earnings and promotions in the early stages kanter 1977 rosenbaum 1984 later success is positively associated with early success even when one controls for the effect of observable characteristics likely to affect performance such as education one obvious source of this correlation is differences in ability that persist over time and that are not captured by the observable covariates in this paper we focus on differences in ability which are initially unobservable by organizations and their workers as well as by researchers we present a simple model of an organization trying to learn about differences in ability and show

product and price competition with satiation effects consumers become satiated with a product when purchasing too much too quickly how much is too much and how quickly is too quickly depends on the characteristics of the product relative to the time interval between consumption periods knowing that consumers allocate their budget to products that generate less satiation effects retailers should then choose to sell products that induce minimal satiation but usually this is operationally more costly to study this trade off we provide an analytical model based on utility theory that relates customer consumption to price and satiation in the context of multiple competing retailers we determine the purchasing pattern over time and provide an explicit expression to determine the consumption level in steady state we derive market shares and show that they take the form of an attraction model in which the attractiveness depends on price and product satiation we use this to analyze the competition between firms that maximize long term average profit we characterize the equilibrium under three scenarios i price only competition ii product only competition and iii price and product competition the results reveal the interplay between a key marketing lever price and the firm s ability to offer products that generate less satiation in particular we show that when a firm becomes more efficient at reducing satiation its competitor may benefit if competition is on product only but not if it is on price and product we also find that when satiation effects are not managed a firm s profit may be significantly reduced while a strategic competitor can largely benefit this paper was accepted by yossi aviv operations management

joint inventory and pricing decisions for an assortment we seek optimal inventory levels and prices of multiple products in a given assortment in a newsvendor model single period stochastic demand under price based substitution but not stockout based substitution we address a demand model involving multiplicative uncertainty motivated by market share models often used in marketing the pricing problem that arises is known not to be well behaved in the sense that in its deterministic version the objective function is not jointly quasi concave in prices however we find that the objective function is still reasonably well behaved in the sense that there is a unique solution to the first order conditions and this solution is optimal for our problem

the optimal prize structure of symmetric tullock contests we show that the optimal prize structure of symmetric n player tullock tournaments assigns the entire prize pool to the winner provided that a symmetric pure strategy equilibrium exists if such an equilibrium fails to exist under the winner take all structure we construct the optimal prize structure which improves existence conditions by dampening efforts if no such optimal equilibrium exists no symmetric pure strategy equilibrium induces positive efforts

optimal pricing of correlated product options under the paired combinatorial logit model in this paper we study price optimization with price demand relationships captured by the paired combinatorial logit pcl model which overcomes restrictions of the well studied multinomial logit mnl and nested logit nl models the pcl model allows for choice correlation and like the nl model includes the mnl model as a special case compared to the nl models the pcl model does not restrict the sequence of the choice structure and allows for different covariances among all pairs of choices this additional flexibility in structure enables a more accurate representation of some choice settings and broadens its empirical applications hence it is of both theoretical and practical interests to extend the normative studies on the mnl and nl models to the pcl model and examine the pricing problem under this model due to cross nesting of choice alternatives the pricing problem under the pcl model poses a greater challenge than the mnl and nl models however using the concept of p matrix we are abl

the perils of transparency in bureaucracies many countries have recently enacted or proposed reforms aimed at increasing citizens information on the quality of some public sector services disclosure of schools and teachers quality is the case that has generated the biggest public debate in the us the no child left behind act nclb requires learning progress to be measured for every child and results from students tests be made available in annual report cards so that parents can evaluate schools performances similar reforms have also been proposed for many other public services in the uk legislation introduced in the year 2000 now requires that the performance of each local government is reviewed and made public with regards to provision of services such as re police housing social services and education but also like the condition of roads the

integrated inventory model for deteriorating items under a multi echelon supply chain environment abstract as the industrial environment becomes more competitive supply chain management has become essential the objective of this research is to develop a multi echelon inventory model for a deteriorating item and to derive an optimal joint total cost from an integrated perspective among the supplier the producer and the buyer a computer code is developed to derive the optimal solution a numerical example is given to illustrate the model this paper shows that the integrated approach strategy results in the lowest joint total cost as compared with the independent decision approaches

decision making in committees transparency reputation and voting rules in this paper i analyze the effect of the transparency of the decision making process in committees on the decisions that are eventually taken i focus on committees whose members are motivated by career concerns so that each member tries to enhance his own reputation when the decision making process is secretive the individual votes of the committee members are not exposed to the public but only the final decision thus individuals are evaluated according to the group s decision i find that in such a case group members are induced to comply with preexisting biases for example if the voting rule demands a supermajority to accept a reform individuals vote more often against reforms and exacerbate the conservatism of the voting rule when the decision making process becomes transparent and individual votes are observed this effect disappears and such committees are then more likely to accept reforms i also find that coupled with the right voting rule a secretive procedure may induce better decisions than a transparent one

rewarding improvements optimal dynamic contracts with subjective evaluation we study a t period contracting problem where performance evaluations are subjective and private we find that the principal should punish the agent for performing poorly in the future even when the evaluations were good in the past at the same time the agent should be given opportunities to make up for poor evaluations in the past with better performance in the future optimal incentives are thus asymmetric conditional on the same number of good evaluations an agent whose performance improves over time should be better rewarded than one whose performance deteriorates

a static approximation for dynamic demand substitution with applications in a competitive market we propose a static approximation of dynamic demand substitution behavior based on a fluid network model and a service inventory mapping this approximation greatly enhances our ability to analyze the interdependent inventory service price and product assortment decisions in noncompetitive and competitive scenarios with demand substitution we demonstrate that the approximation is well behaved and then apply it to two previously intractable applications first we study a price and service competition between single product retailers after establishing a unique pure strategy nash equilibrium we find that competition results in lower price higher demand and a higher level of inventory we also observe that the aggregate profit and inventory level increase to positive constants as the number of retailers goes to infinity second we study a duopolistic competition on price service and product assortment we establish a pure strategy nash equilibrium for the product assortment competition and identify a condition for uniqueness we find that competition on both price and product assortment results in lower price and less variety for each competitor but the total number of products and the aggregate inventory level in a duopoly market are both likely to be higher than in a monopolistic market

the provision of public goods under alternative electoral incentives politicians who care about the spoils of office may underprovide a public good because its benefits cannot be targeted to voters as easily as pork barrel spending we compare a winner take all system where all the spoils go to the winner to a proportional system where the spoils of office are split among candidates proportionally to their share of the vote in a winner take all system the public good is provided less often than in a proportional system when the public good is particularly desirable we then consider the electoral college system and show that it is particularly subject to this inefficiency

optimal incentives for sequential production processes i study optimal incentive schemes in organizations where agents perform their tasks sequentially i consider a model in which agents effort decisions are mapped into the probability of the project s success an optimal investment inducing mechanism allocates rewards to agents so as to induce all of them to exert effort in equilibrium at minimal cost to the principal i characterize the unique optimal mechanism in several versions of my benchmark model i also address the problem of allocating individuals with diverse qualifications to different slots of the production process as well as allocating tasks of different importance across different agents copyright 2006 rand

interim performance feedback in multistage tournaments the optimality of partial disclosure workers competing in a tournament for a prize e g a promotion often perform sequentially in multiple stages when the firm is privately informed about the workers performance it can sharpen incentives by strategically disclosing the intermediate results but the policies that enhance final stage effort may dampen incentives at the intermediate stage in our model the optimal disclosure policy has a simple form disclose only if all workers perform poorly this result offers a novel justification for partial disclosure in performance feedback also it contrasts with the existing literature that focuses on the extreme policies of full disclosure and no disclosure

the single vendor single buyer integrated production inventory model with a generalised policy abstract this note considers a more general type of policy for the single vendor single buyer integrated production inventory model than has hitherto been presented based on successive shipments to the buyer within a single production batch increasing by a fixed factor

incentives and discrimination optimal incentive mechanisms may require that agents are rewarded differentially even when they are completely identical and are induced to act the same we demonstrate this point by means of a simple incentive model where agents decisions about effort exertion is mapped into a probability that the project will succeed we give necessary and sufficient conditions for optimal incentive mechanisms to be discriminatory we also show that full discrimination across all agents is required if and only if the technology has increasing return to scale in the non symmetric framework we show that negligible differences in agents attributes may result in major differences in rewards in the unique optimal mechanism this abstract was borrowed from another version of this item

on improving the single vendor single buyer integrated production inventory model with a generalized policy abstract in this note a simple procedure is suggested for modifying shipment size as obtained on applying the procedure given by hill european journal of operational research 97 1997 493 499

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

optimal and competitive assortments with endogenous pricing under hierarchical consumer choice models this paper studies assortment planning and pricing for a product category with heterogeneous product types from two brands we model consumer choice using the nested multinomial logit framework with two different hierarchical structures a brand primary model in which consumers choose a brand first then a product type in the chosen brand and a type primary model in which consumers choose a product type first then a brand within that product type we consider a centralized regime that finds the optimal solution for the whole category and a decentralized regime that finds a competitive equilibrium between two brands we find that optimal and competitive assortments and prices have quite distinctive properties across different models specifically with the brand primary model both the optimal and the competitive assortments for each brand consist of the most popular product types from the brand with the type primary choice model the optimal and the competitive assortments for each brand may not always consist of the most popular product types of the brand instead the overall assortment in the category consists of a set of most popular product types the price of a product under the centralized regime can be characterized by a sum of a markup that is constant across all products and brands its procurement cost and its marginal operational cost implying a lower price for more popular products the markup may be different for each brand and product type under the decentralized regime implying a higher price for brands with a larger market share these properties of the assortments and prices can be used as effective guidelines for managers to identify and price the best assortments and to rule out nonoptimal assortments our results suggest that to offer the right set of products and prices category and or brand managers should create an assortment planning process that is aligned with the hierarchical choice process consumers commonly follow to make purchasing decisions this paper was accepted by pradeep chintagunta and preyas desai special issue editors this paper was accepted by pradeep chintagunta and preyas desai special issue editors

a unified approach to identifying estimating and testing demand structures with aggregate scanner data a one to one map between a specific demand structure and a restricted cross elasticity matrix is developed and tested using a random utility model the resulting demand structure can be used to evaluate a firm s ability to differentiate its products and can help determine if demand is characterized by factors that are easy to change similar brands are assumed to share common attributes that are stochastically evaluated by the consumer resulting in a random utility model with correlated errors the map results in more precise cross elasticity estimates and can be used to both identify and test possible structures

category management and coordination in retail assortment planning in the presence of basket shopping consumers this paper studies the assortment planning problem with multiple merchandise categories and basket shopping consumers i e consumers who desire to purchase from multiple categories we present a duopoly model in which retailers choose prices and variety level in each category and consumers make their store choice between retail stores and a no purchase alternative based on their utilities from each category the common practice of category management cm is an example of a decentralized regime for controlling assortment because each category manager is responsible for maximizing his or her assigned category s profit alternatively a retailer can make category decisions across the store with a centralized regime we show that cm never finds the optimal solution and provides both less variety and higher prices than optimal in a numerical study we demonstrate that profit loss due to cm can be significant finally we propose a decentralized regime that uses basket profits a new metric rather than accounting profits basket profits are easily evaluated using point of sale data and the proposed method produces near optimal solutions

team contests with multiple pairwise battles abstract we consider a multi battle team contest in which players from two rival teams form pairwise matches to fight in distinct component battles which are carried out sequentially or partially

assortment optimization under variants of the nested logit model we study a class of assortment optimization problems where customers choose among the offered products according to the nested logit model there is a fixed revenue associated with each product the objective is to find an assortment of products to offer so as to maximize the expected revenue per customer we show that the problem is polynomially solvable when the nest dissimilarity parameters of the choice model are less than one and the customers always make a purchase within the selected nest relaxing either of these assumptions renders the problem np hard to deal with the np hard cases we develop parsimonious collections of candidate assortments with worst case performance guarantees we also formulate a convex program whose optimal objective value is an upper bound on the optimal expected revenue thus we can compare the expected revenue provided by an assortment with the upper bound on the optimal expected revenue to get a feel for the optimality gap of the assortment by using this approach our computational experiments test the performance of the parsimonious collections of candidate assortments that we develop

the production inventory problem of a product with time varying demand production and deterioration rates abstract in this paper we consider the production inventory problem in which the demand production and deterioration rates of a product are assumed to vary with time shortages of a cycle are allowed to be backlogged partially two models are developed for the problem by employing different modeling approaches over an infinite planning horizon solution procedures are derived for determining the optimal replenishment policies a procedure to find the near optimal operating policy of the problem over a finite time horizon is also suggested

political competition and state government size do tighter elections produce looser budgets we test implications of politicalcompetition theory concerning government size usingdata from u s states we find that greaterpolitical competition in the race for governor actsas a check against bigger government evidence onthe effectiveness of legal limits on expendituresand or revenues growth is mixed the democraticparty is associated with bigger government but onlywhen party representation in both the governor shouse and the legislature is strong the flypapereffect of grants is found to be strong our resultshave implications for models of fiscal illusion

on equilibrium player ordering in dynamic team contests we study equilibrium player ordering in a dynamic all pay contest between two teams the contest lasts two periods and each team consists of two players who perform in different periods on behalf of their teams the team with the higher aggregate output wins the prize which is a public good to its players each team has one stronger player and one weaker player and the two teams can differ in their values of the prize the teams maximize their winning odds by strategically assigning their players to different periods we find that when the intrateam heterogeneity in player ability is not excessive the teams would allocate their stronger players to the late positions as the anchormen when both the intrateam ability gap and interteam heterogeneity in teams values become excessively large the team with high value always places its stronger player in the early position who will place a large bid to preempt late competition jel c7 d7 d8

market segmentation self selection and product line design the purpose of this paper is to develop a theory of market segmentation based on consumer self selection the extant theory is based on the third degree price discrimination model of pigou central assumptions of which are that the firm can directly address individual segments and isolate them by using consumer self selection i am relaxing these assumptions in the context of a monopolist designing a product line i show that this relaxation has significant implications for how the products and prices are chosen and what they look like in particular segments may be aggregated even though there are no economies of scale furthermore consumer self selection enables us to model cannibalization and competition among firms

the optimal allocation of prizes in contests we study a contest with multiple not necessarily equal prizes contestants have private information about an ability parameter that affects their costs of bidding the contestant with the highest bid wins the first prize the contestant with the second highest bid wins the second prize and so on until all the prizes are allocated all contestants incur their respective costs of bidding the contest s designer maximizes the expected sum of bids our main results are 1 we display bidding equlibria for any number of contestants having linear convex or concave cost functions and for any distribution of abilities 2 if the cost functions are linear or concave then no matter what the distribution of abilities is it is optimal for the designer to allocate the entire prize sum to a single first prize 3 we give a necessary and sufficient conditions ensuring that several prizes are optimal if contestants have a convex cost function

information policy in tournaments with sabotage sabotage is one of the main problems of tournament like reward schemes workers who are leading in a tournament are more dangerous rivals and are therefore sabotaged more heavily this implies that there is an extra cost to becoming a leader and hence to choosing high productive effort in the early stages of a tournament the incentives to exert productive effort are thereby reduced we show that this problem can be solved by concealing intermediate information on the performances of workers i e by clever information management moreover we offer experimental evidence indicating that such information management does increase productive efforts

a drawback of electoral competition in most major democracies there are very few parties compared to the number of possible policy positions held by voters we provide an efficiency rationale for why it might be appropriate to limit the proliferation of parties in our model the larger the number of parties the greater the inefficiency of the outcome of electoral competition the reason is that when the number of parties increases electoral incentives push each party to focus its electoral promises on a narrower constituency and then special interest policies replace more efficient policies that have diffuse benefits the analysis provides a possible explanation for the existence of institutional features that limit the extent of electoral competition thresholds of exclusion runoff electoral systems and majoritarian two party political systems jel d82 l15

product line pricing in a supply chain a vertically integrated channel would prefer to coordinate the pricing of its products in this paper we investigate drivers of product line pricing decisions in a bilateral monopoly where a manufacturer produces and sells two substitutable or complementary products to a retailer in a two stage game each firm commits credibly in the first stage to a pricing scheme within its own organization product line pricing plp or nonproduct line pricing nplp in the second stage depending on the relative balance of power in the supply chain the firms engage in either a nash or a leader follower pricing game we study the equilibrium of the two stage game under a general symmetric demand function with strategic interaction between firms a firm may choose nplp as the equilibrium pricing strategy in particular when the second stage is a leader follower game the price leader chooses plp and the follower may choose nplp only if the inefficiency of using nplp empowers the follower by increasing the demand sensitivity to the leader s margin when the second stage is a vertical nash game whether nplp occurs in equilibrium depends on the nature of coupling between demand interdependence and vertical strategic dependence nplp can be an equilibrium onlyif products are demand substitutes complements and vertical strategic dependencies are complementary substitutable we find that prisoner s dilemma exists in the first stage for both types of second stage pricing games in those cases one firm may have the incentive to commit to a pricing scheme in the first stage prior to its channel partner and steer the supply chain away from prisoner s dilemma

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

testing competitive market structures an accurate understanding of the structure of competition is important in the formulation of many marketing strategies for example in new product launch product reformulation or positioning decisions the strategist wants to know which of his competitors will be most affected and hence most likely to respond many marketing science models have been proposed to identify market structure in this paper we examine the managerial problem and propose a criterion by which to judge an identified market structure basically our criterion is a quantification of the intuitive managerial criterion that a submarket is a useful conceptualization if it identifies which products are most likely to be affected by our marketing strategies we formalize this criterion within the structure of classical hypothesis testing so that a marketing scientist can use statistical statements to evaluate a market structure identified by 1 behavioral hypotheses 2 managerial intuition or 3 market structure identification algorithms mathematically our criterion is based on probabilities of switching to products in the situation where an individual s most preferred product is not available submarkets are said to exist when consumers are statistically more likely to buy again in that submarket than would be predicted based on an aggregate constant ratio model for example product attributes e g brand form size use situations e g coffee in the morning versus coffee at dinner and user characteristics e g heavy versus light users are specified as hypotheses for testing alternate competitive structures measurement and estimation procedures are described and a convergent approach is illustrated an application of the methodology to the coffee market is presented and managerial implications of six other applications are described briefly

clean evidence on peer effects we study subjects who were asked to fill letters into envelopes with a remuneration independent of output in the pair treatment two subjects worked at the same time in the same room and peer effects were possible in the single treatment subjects worked alone and peer effects were ruled out we find evidence of peer effects in the pair treatment because the standard deviations of output are smaller within pairs than between pairs moreover average output is higher in the pair treatment thus peer effects raise productivity finally low productivity workers are the most sensitive to the behavior of peers

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

do polls create momentum in political competition abstract we explore how public opinion polls affect candidates campaign spending in political competition generally polls lead to more asymmetric behavior under a majority rule there always exists an equilibrium in which the initially more popular candidate invests more in the campaign and thereby increases her lead in expectation polls create momentum when campaigning is very effective and the race is very close a second type of equilibrium may exist the trailing candidate outspends and overtakes his opponent regardless of the type of equilibrium polls have a tendency to decrease expected total campaigning expenditures by amplifying ex ante asymmetries between candidates and thus defusing competition when candidates care also for their vote share in addition to having the majority candidates incentives crucially depend on the distribution of voters candidate preferences

a one vendor multi buyer integrated inventory model abstract we consider a one vendor multi buyer integrated inventory model the vendor seeks to minimize his total annual cost subject to the maximum costs which buyers are prepared to incur in order to implement this model the vendor only needs to know buyer s annual demand and previous order frequency which can be inferred from buyer s past ordering behavior we find the optimal solution for the one vendor one buyer case and present a heuristic approach for the one vendor multi buyer case

transparency inequity aversion and the dynamics of peer pressure in teams theory and evidence we provide an explanation for peer pressure in teams based on inequity aversion analyzing a two period model with two agents we find that the effect of inequity aversion strongly depends on the information structure when contributions are unobservable agents act as though they were purely selfish however when contributions are made transparent at an interim stage agents exert higher efforts in the first period and adjust their efforts according to the interim information in the second period this form of peer pressure reduces free riding and thus more efficient outcomes are attained the results are confirmed in a real effort experiment

an optimal batch size for integrated production inventory policy in a supply chain abstract this study presents a new integrated production inventory policy under a finite planning horizon and a linear trend in demand we assume that the vendor makes a single product and supplies it to a buyer with a non periodic and just in time jit replenishment policy in a supply chain environment the objective is to minimize the joint total costs incurred by the vendor and the buyer in this study first we develop a mathematical model and prove that it has the optimal solution then we describe an explicit solution procedure for obtaining the optimal solution finally we provide two numerical examples to illustrate both increasing and decreasing demands in our proposed model and we show that the performance of the integrated consideration is better than the performance of any independent decision from either the buyer or the vendor

competition based dynamic pricing in online retailing a methodology validated with field experiments a retailer following a competition based dynamic pricing strategy tracks competitors price changes and then must answer the following questions i should we respond ii if so to whom iii how much of a response iv and on which products the answers require unbiased measures of price elasticity as well as accurate estimates of competitor significance and the extent to which consumers compare prices across retailers there are two key challenges to quantify these factors empirically first the endogeneity associated with almost any type of observational data where prices are correlated with demand shocks observable to pricing managers but not to researchers and second the absence of competitor sales information which prevents efficient estimation of a full consumer choice model we address the first issue by conducting a field experiment with randomized prices we resolve the second issue by exploiting the retailer s own and competitors stockouts as a source of variation to the consumer cho

orchestrating rent seeking contests contests have different sometimes quite complex organisational structures in particular while most of the existing literature focusses on simultaneous contests multistage contests are also quite frequently encountered this paper seeks to provide a rationale for the latter by endogenising the choice of a contest structure which is made by an organiser of a contest interested in maximising the efforts expended by the contenders

intermediate information loss aversion and effort empirical evidence the present article empirically explores the impact of intermediate information on contestants effort data involving substituted soccer players of the german bundesliga indicate only weak evidence of a negative effect of ex ante heterogeneity on effort in contrast intermediate information measured by goal difference at the time of substitution significantly affects effort players exert the greatest effort when their team is leading by one goal and reduce their effort when it is trailing when intermediate information suggests the contest is already decided players from both teams reduce effort this behavior is in line with loss aversion such that players weight potential losses more than potential gains and adjust their effort accordingly jel z22 j41 m54

optimal incentives for teams much of the existing theory of incentives describes a static relationship that lasts for just one transaction this static assumption is not only unrealistic but the resulting predictions appear to be at odds with many work organizations the current paper introduces possible long term interaction among agents and studies how the design of explicit incentives and work organizations can exploit and interact with the implicit incentives generated by the repeated interaction of the agents the optimal incentive scheme is shown to display observed features of the increasingly popular teams such as the use of low powered group incentives

on the relationship between inventory costs and variety benefits in retailassortments consider a category of product variants distinguished by some attribute such as color or flavor a retailer must construct an assortment for the category i e select a subset variants to stock and determine purchase quantities for each offered variant we analyze this problem using a multinomial logit model to describe the consumer choice process and a newsboy model to represent the retailer s inventory cost we show that the optimal assortment has a simple structure and provide insights on how various factors affect the optimal level of assortment variety we also develop a formal definition of the level of fashion in a category using the theory of majorization and examine its implications for category profits

double edged transparency in teams abstract in a team project with significant complementarities between various players individual tasks news of early success by some encourages others to push ahead with their own tasks while lack of success has the opposite effect this ex post disparity in incentives created gives rise to two differing implications ex ante for an ideal team transparency sometimes it is better to commit to complete secrecy within the team of the various participants interim progress as it mitigates the negative effect of failures in some other situations commitment to full disclosure is better as players are then encouraged to be proactive by exerting efforts in the early rounds and motivate other team members into continued activities by way of interim progress transparency of outcomes has thus double edges it can boost incentives or dampen incentives

investigating purchase incidence brand choice and purchase quantity decisions of households we develop a comprehensive utility maximizing framework to study the impact of marketing variables on the category purchase brand choice and purchase quantity decisions of households for frequently purchased packaged goods the model allows for dependence among the three decisions while ensuring that these decisions provide in combination the greatest possible utility to the household by accounting for variations in reservation prices and intrinsic brand preferences across households the modeling framework explicitly captures the effects of unobserved heterogeneity on all three purchase decisions the principal empirical finding from analyzing the a c nielsen data for the yogurt product category is that the substantive implications for the effects of marketing variables are sensitive to whether these effects are determined conditional or unconditional on a product category purchase our results show that reservation prices and intrinsic brand preferences vary across households and not accounting for these variations in the estimation could lead to biased estimates for the coefficients of the marketing variables a comparison of our results to those obtained from a nested logit model of purchase incidence and brand choice reveals that our proposed model performs better using both a formal statistical test as well as the criterion of predictive validity in a holdout sample of panelists further the purchase quantity model compares favorably with two alternative models of quantity choice in the validation sample

the importance of relative performance feedback information evidence from a natural experiment using high school students we study the effect of providing relative performance feedback information on performance under piece rate incentives a natural experiment that took place in a high school offers an unusual opportunity to test this effect in a real effort setting for one year only students received information that allowed them to know whether they were above below the class average as well as the distance from this average we exploit a rich panel data set and find that the provision of this information led to an increase of 5 in students grades moreover the effect was significant for the whole distribution however once the information was removed the effect disappeared to rule out the concern that the effect may be driven by teachers within the school we verify our results using national level exams externally graded for the same students and the effect remains

an integrated vendor buyer inventory model with order processing cost reduction and permissible delay in payments trade credit plays an important role in financing for many businesses and industries for the buyers purchased inventory can be considered to be financed in whole or in part with permissible delay in payments during the purchasing process on the other hand both the vendor and buyer take part in order processing cost reduction by applying information technologies such as edi electronic data interchange the order processing cost can also be reduced by adding certain capital investments and this will affect the lot size decisions this article develops an integrated inventory model to determine the optimal inventory policy under conditions of order processing cost reduction and permissible delay in payments and shows that the total annual variable cost function possesses some kinds of convexities a solution procedure is provided to determine the optimal order policy finally a numerical example is presented to illustrate the solution procedure

mass media competition political competition and public policy if better informed voters receive favourable policies then mass media will affect policy because mass media provide most of the information people use in voting this paper models the incentives of the media to deliver news to different groups the increasing returns to scale technology and advertising financing of media firms induce them to provide more news to large groups such as taxpayers and dispersed consumer interests and groups that are valuable to advertisers this news bias alters the tradeoff in political competition and therefore introduces a bias in public policy the paper also discusses the effects of broadcast media replacing newspapers as the main information source about politics the model predicts that this change should raise spending on government programmes used by poor and rural voters

when more alternatives lead to less choice this paper shows that when the alternatives offered to consumers span the preference space as it would be chosen by a firm search or evaluation costs may lead consumers not to search and not to choose if too many or too few alternatives are offered if too many alternatives are offered then the consumer may have to engage in many searches or evaluations to find a satisfactory fit this may be too costly and result in the consumer avoiding making a choice altogether if too few alternatives are offered then the consumer may not search or choose fearing that an acceptable choice is unlikely these two forces result in the existence of a finite optimal number of alternatives that maximizes the probability of choice

optimal production inventory policy for an integrated multi stage supply chain with time varying demand abstract an integrated multi stage supply chain with time varying demand over a finite planning horizon is considered in this paper the objective is to devise the optimal production inventory policy to minimize the total operational cost the model is formulated as a mixed integer nonlinear programming problem the problem is represented as a weighted directed acyclic graph the global minimum total operational cost is computed in polynomial time by the developed algorithm two numerical examples of a seasonal product and a product over its life cycle are studied to illustrate the results a sensitivity analysis of the system parameters is conducted to assist the supply chain decision makers

the wrong kind of transparency in a model of career concerns for experts when is a principal hurt from observing more information about her agent this paper introduces a distinction between information on the consequence of the agent s action and information directly on the agent s action when the latter kind of information is available the agent faces an incentive to disregard useful private signals and act according to how an able agent is expected to act a priori this conformist behavior hurts the principal in two ways the decision made by the agent is less likely to be the right one discipline and ex post it is more difficult to evaluate the agent s ability sorting the paper identifies a necessary and sufficient condition on the agent signal structure under which the principal bene ts from committing not to observe the agent s action the paper also shows the existence of strategic complementarities between information on action and information on consequence the results on the distinction between action and consequence are then used to interpret existing disclosure policies in delegated portfolio management in particular they are consistent with hitherto puzzling evidence that mutual funds systematically overperform pension funds

incentives versus competitive balance abstract when players compete repeatedly prizes won in earlier contests may improve the players abilities in later contests this paper determines the allocation of prizes within and across contests that maximizes the weighted sum of aggregate efforts

a production inventory model for a deteriorating item with trended demand and shortages abstract a production inventory model is developed for a deteriorating item over a finite planning horizon with a linear time varying demand finite production rate and shortages the resulting nonlinear constrained minimization problem is numerically solved by using the box complex algorithm the optimal number of production cycles that minimizes the average system cost is determined sensitivity analysis of the optimal solution is carried out

the d level nested logit model assortment and price optimization problems we consider assortment and price optimization problems under the d level nested logit model in the assortment optimization problem the goal is to find the revenue maximizing assortment of products to offer when the prices of the products are fixed using a novel formulation of the d level nested logit model as a tree of depth d we provide an efficient algorithm to find the optimal assortment for a d level nested logit model with n products the algorithm runs in o d n log n time in the price optimization problem the goal is to find the revenue maximizing prices for the products when the assortment of offered products is fixed although the expected revenue is not concave in the product prices we develop an iterative algorithm that generates a sequence of prices converging to a stationary point numerical experiments show that our method converges faster than gradient based methods by many orders of magnitude in addition to providing solutions for the assortment and price optimization problems

on the effects of consumer search and firm entry in a multiproduct competitive market this paper studies a model in which consumers search among multiple competing firms for products that match their preferences at a reasonable price we focus on how easier search possibly due to the adoption of search facilitating technologies such as the internet influences equilibrium prices assortments firm profits and consumer welfare conventional wisdom suggests that easier search creates a competition intensifying effect that puts pressure on firms to lower their prices and reduce assortments however in our model we demonstrate that search also exhibits a market expansion effect that encourages firms to expand their assortment easier search means that each firm is searched by more consumers because of broader assortments consumers are more likely to find products that better match their ideal preferences improving the efficiency of the market in fact we demonstrate that the market expansion effect can even dominate the competition intensifying effect potentially leading to higher prices broader assortments more profits and expanded welfare

vertical multinationals and host country characteristics abstract we inquire into the question of what country characteristics particularly market size and labor force composition attract inward investment this approach is motivated by the empirical observation that the poorest countries attract a far smaller share of world direct investment than their share of income small markets receive less investment per capita than larger ones we develop a model that generates both stylized facts in equilibrium suggesting the existence of a development trap for small skilled labor scarce countries

assortment planning and inventory decisions under a locational choice model we consider a single period assortment planning and inventory management problem for a retailer using a locational choice model to represent consumer demand we first determine the optimal variety product location and inventory decisions under static substitution and show that the optimal assortment consists of products equally spaced out such that there is no substitution among them regardless of the distribution of consumer preferences the optimal solution can be such that some customers prefer not to buy any product in the assortment and such that the most popular product is not offered we then obtain bounds on profit when customers dynamically substitute using the static substitution for the lower bound and a retailer controlled substitution for the upper bound we thus define two heuristics to solve the problem under dynamic substitution and numerically evaluate their performance this analysis shows the value of modeling dynamic substitution and identifies conditions in which the static substitution solution serves as a good approximation