regulatory reform in britain regulatory reform in britain john kay and john vickers major sectors of the british economy are currently undergoing far reaching regulatory reform deregulation removal of barriers to competition and the introduction of new methods of regulation are occurring notably in financial services some of the professions and in utility industries such as telecommunications gas and electricity this paper gives an economic assessment of these developments the authors examine the root causes of market failure that call for regulation externalities monopoly and information problems and the pros and cons of various regulatory responses a broad distinction is drawn between structural regulation the determination of which firms or types of firms can engage in which activities and conduct regulation the control of how firms behave in their chosen activities recent examples of deregulation plus re regulation in britain are seen in part as a shift from structural to conduct regulation the relative merits of the two modes of regulation are complex to assess but it is argued that some recent regulatory reforms are placing undue reliance on conduct regulation as well as assessing individual industries the authors draw general conclusions about the desirability of regulatory solutions that make full use of market forces

competition and social influence the diffusion of the sixth generation processor in the global computer industry1 when is a social actor most strongly influenced by its peers this article addresses this question by clarifying when computer firms were most strongly affected by the choices of their structurally equivalent rivals to adopt a well known technology intel s sixth generation processor the core hypothesis is that the effect of adoptions by structurally equivalent firms increases with the competitive pressure that a focal firm faces in its market position the results show that a chosen firm is most strongly influenced by comparable others when it faces scale based competition and is diversified the implications of this study are twofold a social actor s sensitivity to the conduct of others may depend not only on its place in a hierarchy but also on the nature of its ties to an external audience and a contingent theory of social influence may be necessary to characterize diffusion processes correctly particularly when external and time varying nonnetwork factors have significant effects

access pricing and investment with stochastically growing demand abstract this paper examines the effect of access charges on firms incentives to invest in a network facility with a stochastically growing demand an access to bypass equilibrium is characterized in terms of an access charge and a level of network investment cost in the equilibrium a leader first enters a market by building a new network then a follower makes a sequential investment for the construction of an additional network after accessing the incumbent s network in an open access environment we confirm that the incentive for preemption can be enhanced by an increase in the access charge

tying and innovation a dynamic analysis of tying arrangements this paper analyses the effects of tying arrangements on r d incentives it shows that tying is a means through which a firm can commit to more aggressive r d investment in the tied goods market tying also has the strategic effect of reducing rivals incentives to invest in r d the strategy of tying is a profitable one if the gains via an increased share of dynamic rents in the tied goods market exceed the losses that result from intensified price competition in the market the welfare implications of tying and consequently the appropriate antitrust policy are discussed

supply chain disruption management and evolutionarily stable strategies of retailers in the quantity setting duopoly situation with homogeneous goods this paper develops an indirect evolutionary game model with two vertically integrated channels to study evolutionarily stable strategies ess of retailers in the quantity setting duopoly situation with homogeneous goods and analyzes the effects of the demand and raw material supply disruptions on the retailers strategies every channel consists of one manufacturer and many a sufficiently large number of retailers that sell products in different markets by adopting two pure marketing strategies profit maximization and revenue maximization we find that revenue maximization strategy may prevail and profit maximization strategy may become extinct two strategies may coexist i e all retailers in one channel will choose profit maximization strategy and all retailers in the other will choose revenue maximization strategy the ess of retailers depends on the relative size of the market scale and unit cost the supply chain disruptions affect the ess of retailers we also introduce a recovery model of the supply chain under disruptions and illustrate the effect of disruptions on the ess and on the average profits of channels in a market using a numerical simulation

attack defence and contagion in networks sanjeev goyal acknowledges support from a keynes fellowship cambridge inet institute and european research area complexity net resilience and interaction of networks in ecology and economics adrien vigier acknowledges support from a gates cambridge fellowship as well as a core fellowship from universite catholique de louvain

access price regulation investment and entry in telecommunications abstract we consider a model with a vertically integrated monopolist network provider who faces rival operators in the retail market we examine the network operator s incentives for infrastructure investment we find that investments are below the social optimum even when there is no regulation and access price regulation further reduces investment incentives we show that the underinvestment problem may have negative effects on the viability of competition access price regulation does not necessarily reduce the likelihood of foreclosure and in the presence of regulation rivals are most likely to be foreclosed when they would bring highest benefits to consumers

party politics and the reemergence of social pacts in western europe conventional accounts of the reemergence of social pacts in western europe argue they are a governmental response to economic pressures in particular the requirements for joining the european monetary union emu the authors analyze three case studies the netherlands ireland and austria to illustrate the usefulness of an alternative explanation centering on electoral calculations by political parties in choosing pacts parties forge social pacts not only to deal with economic problems but also when they perceive them to be helpful in reducing the potential electoral costs of economic adjustment and wage policies alternatively parties may forgo negotiations with social partners for electoral gain the authors extend the analysis to seven additional countries to apply the analysis more broadly by combining the separate literatures on political economy and party politics they are able to shed new light on the dynamics of social pacts in western europe

grabber holder dynamics and network effects in technology innovation abstract economists and marketing researchers have examined how network effects can have an impact on the adoption of technology and products and how an intrinsic inferior product or technology may dominate the market however their studies have not explained how a producer could create network effect for a new product and how after successfully creating the network effect for this product the producer could lose it in a short period of time while these studies provide insight into technology innovation after it happened they fail to shed light on understanding many of the surprises that we experience in the process the objective of this paper is to present a fundamental framework that helps us understand most of the surprising outcomes that we have seen in technology innovation processes especially the winners and losers in an innovation process the framework is built on a grabber holder dynamic model that captures how all the intelligent agents involved in an innovation shape the forces that either induce a strong network effect or destroy a network effect that is already in place the model can be used to explain many surprising events that have happened in technology innovation in this paper i apply the model to the personal computer innovation

diffusion of a new product under network effects the us dvd market we formulate a model that captures the inter dependence between hardware demand and software supply indirect network effect in the dvd industry the identification of the network effect comes from the difference in software availability across two different formats vhs and dvd we find that a 1 increase in the number of dvd titles raises the demand for dvd players by 0 87 simultaneously a 1 increase in video player ownership leads to a 0 14 increase in the variety of video titles our simulations show that hardware manufacturers might be able to internalize the network externality to increase total industry revenues

business to business bargaining in two sided markets abstract bargaining regularly takes place on the business to business side of two sided markets however little is known about the consequences of these negotiations in this paper we allow the platform or a policy maker to choose between a standard design offering posted prices to both sides or a design with bargaining offering a posted price to consumers and negotiating with at least some firms we find that the platform pursues negotiations when it has a strong bargaining position and does so by targeting firms with the largest network effects while this behavior may appear exploitive we show that profits and welfare often align across platform designs this alignment stems from how bargaining incentivizes the platform greater platform bargaining power allows the platform to extract more of the network surpluses since it can convert more of the firm surplus into profits and this incentivizes the platform to draw in greater participation generating greater welfare these results suggest that platform and policy maker preferences often align in this setting

competing by restricting choice the case of search platforms we show that a two sided matching platform can successfully compete by limiting the number of choices it offers to its customers while charging higher prices than platforms with unrestricted choice we develop a stylized model of online dating where agents with different outside options match based on how much they like each other starting from these microfoundations we derive the strength and direction of indirect network effects and show that increasing the number of potential matches has a positive effect due to larger choice but also a negative effect due to competition between agents on the same side agents resolve the trade off between these competing effects differently depending on their outside options for agents with high outside options the choice effect is stronger than the competition effect leading them to prefer an unrestricted choice platform the opposite is the case for agents with low outside options who then have higher willingness to pay for a platform restricting choice as

competing technologies the learning curve and rational expectations abstract the problem of choice between several variants of a technology subject to dynamic learning economies is examined in a rational expectations model with overlapping adopters it is shown that even with rational expectations the long term market outcome depends sensitively on the pattern of early chance events and that only one variant of the technology will come to dominate the market in the long run this variant need not be the one which is socially optimal or most promising technically

speeding up the internet regulation and investment in european fiber optic infrastructure in this paper we study how the coexistence of access regulations for legacy copper and fiber networks shapes the incentives to invest in network infrastructure to this end we develop a theoretical model explaining investment incentives by incumbent telecom operators and heterogeneous entrants and test its main predictions using panel data from 27 eu member states over the last decade our theoretical model extends the existing literature by among other things allowing for heterogeneous entrants in internet access markets as we consider both other telecom and cable tv operators as entrants in the empirical part we use a novel data set including information on physical fiber network investments legacy network access regulation and recently imposed fiber access regulations our main finding is that more stringent access regulations for both the legacy and the fiber networks harm investments by incumbent telecom operators but in line with our theoretical model do not affect cable tv operators

strikes are more common in countries with majoritarian electoral systems strikes are more common in those oecd countries where the legislature is elected in single member districts smd than in those where it is elected by proportional representation pr furthermore more working days are lost due to industrial conflict in countries with smd i suggest a politico economic explanation for these rarely noticed empirical regularities further empirical testing including controls drawn from previous strike research reveals that they hold up in a variety of econometric specifications

coordinating adoption decisions under externalities and incomplete information abstract a monopolist sells a good whose value depends on the number of buyers who adopt it as well as on their private types the seller coordinates the buyers adoption decisions based on their reported types and charges them the price based on the number of adoptions we study ex post implementable sales schemes that are collusion proof and show that under the revenue maximizing scheme more buyer types are willing to adopt when there are more adoptions and the number of adoptions is maximized subject to the participation constraints

rational incompatibility with international product standards abstract international product standardization enables traditional price based competition but the existence of redesign costs or network effects creates market frictions that diminish the incentive to standardize if there already exists a different technology in an established market this leads to multi attribute competition between products and will generally reduce trade flows not only do incumbent firms using a different technology have an incentive to deviate from an international standard but a host country government concerned for its consumers welfare has no incentive to enforce the international standard and may even value deviation from the international standard through technical barriers to trade

union density and political strikes why do trade unions organize antigovernment strikes in some countries but not in others this article argues that there is a curvilinear relationship between union density and political strike activity political strikes are rare in countries with low union density since effective protests require a basic level of organizational capacity they are also rare in countries with high union density since a government that faces a strong union movement has powerful incentives to adjust its policies in order to avoid open confrontation but political strikes are relatively common in countries with moderate levels of union density since it is difficult for governments and unions to find viable compromises when the strength of the unions is not secure the empirical part of the article estimates the relationship between union density and the likelihood of political strikes in two samples of advanced democracies

telecommunications infrastructure and economic development a simultaneous approach in diesem beitrag wird untersucht welchen einflus die telekommunikations infrastruktur auf die wirtschaftliche entwicklung ausubt diese wichtige frage hat im zusammenhang mit der diskussion um informationsautobahnen aktualitat erlangt in der vorliegenden studie wird der einflus der telekommunikations infrastruktur fur 21 oecdlander fur die vergangenen 20 jahre analysiert es wird ein strukturgleichungsmodell geschatzt in dem investitionen in die telekommunikations infrastruktur als endogene variable erfast werden und in einem mikromodell angebot und nachfrage nach telekommunikations investitionen spezifiziert werden das mikromodell wird dann zusammen mit der makro wachstumsgleichung geschatzt als ergebnis stellen die autoren dann eine positive kausalbeziehung zwischen telekommunikations investitionen und wirtschaftlicher entwicklung fest wenn eine kritische masse an telekommunikations infrastruktur existiert

rationalist explanations for war realist and other scholars commonly hold that rationally led states can and sometimes do fight when no peaceful bargains exist that both would prefer to war against this view i show that under very broad conditions there will exist negotiated settlements that genuinely rational states would mutually prefer to a risky and costly fight popular rationalist and realist explanations for war fail either to address or to explain adequately what would prevent leaders from locating a less costly bargain essentially just two mechanisms can resolve this puzzle on strictly rationalist terms the first turns on the fact that states have both private information about capabilities and resolve and the incentive to misrepresent it the second turns on the fact that in specific strategic contexts states may be unable credibly to commit to uphold a mutually preferable bargain historical examples suggest that both mechanisms are empirically plausible

the market value of rarity abstract most theories of demand assume that consumers value the characteristics of products but are unconcerned with how many other consumers also consume the product however several theories of demand argue that consumers can value the exclusivity of possessing a rare object we test this implication on a particular collectible rare coins our paper examines the case of coins of a given type and identical quality that have mintages in different quantities this allows us to exclude the common case in which rarity or price itself is an indicator of quality for our sample rarer coins command higher prices rarity in the form of original mintage more strongly influences the market price than does collectibility as represented by the rarest coins of each mint mark or year we also point out that here may be other goods such as automobiles for which rarity may influence market demand

access pricing competition and incentives to migrate from old to new technology abstract in this paper we analyze the incentives of an incumbent and an entrant to migrate from an old technology to a new technology and discuss how the terms of wholesale access affect this migration we show that the coverage of the new technology varies non monotonically with the access price of the old technology a higher access charge on the legacy network pushes the entrant firm to invest more but has an ambiguous effect on the incumbent s investments due to two conflicting effects the wholesale revenue effect and the retail level migration effect when the new technology is also subject to access provision we find that migration from the old to the new generation network at the wholesale level can be incentivized if a positive correlation between the access prices to the two old and new generation networks is maintained

local network externalities and market segmentation this paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction it departs from the standard katz shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents it shows that even if rival firms engage in bertrand competition this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits the analysis also shows that some graphs or network structures do not permit such segmentation while for others there are easy to interpret conditions under which market segmentation obtains in equilibrium c 2009 elsevier b v all rights reserved

the making of policy institutionalized or not this paper develops a framework for analyzing different policymaking styles their causes and their consequences in latin america finding that lower institutionalization and greater use of alternative political technologies apts are more likely the lower the cost of using these technologies the higher the potential damage they can cause the lower the wealth of the economy and the more asymmetric the distribution of de jure political power moreover strategic complementarity exists in the use of alternative political technologies for instance bribes by the rich and protests by the poor are likely to be countervailing forces and will both occur in polities with weaker political institutions

configuring value for competitive advantage on chains shops and networks building on thompson s 1967 typology of long linked intensive and mediating technologies this paper explores the idea that the value chain the value shop and the value network are three distinct generic value configuration models required to understand and analyze firm level value creation logic across a broad range of industries and firms while the long linked technology delivers value by transforming inputs into products the intensive technology delivers value by resolving unique customer problems and the mediating technology delivers value by enabling direct and indirect exchanges between customers with the identification of alternative value creation technologies value chain analysis is both sharpened and generalized into what we propose as a value configuration analysis approach to the diagnosis of competitive advantage with the long linked technology and the corresponding value chain configuration model as benchmark the paper reviews the distinctive logic and develops models of the value shop and the value network in terms of primary activity categories drivers of cost and value and strategic positioning options 1998 john wiley sons ltd

theorizing path dependence a review of positive feedback mechanisms in technology markets regional clusters and organizations the concept of path dependence has often been criticized as vague and only narrowly applicable although we can find some very refined definitions of the concept we also find a wide range of empirical phenomena being described as path dependent we argue that more detailed accounts of the positive feedback mechanisms that form paths can take path dependence beyond this state of being overdetermined but under specified reviewing three well described cases of path dependent dynamics in technology markets regional clustering and organizations we define a core set of positive feedback mechanisms that constitute path dependence at different analysis levels and clarify the relationship between positive feedback and increasing returns we show that path dependent processes that is processes driven by positive feedback that veer toward rigidity or lock in can be but do not have to be found under many labels including structural inertia coevolution or institutional persistence we conclude that a precise definition of path dependence does not need to be at odds with the concept s widespread use in understanding organizational and industrial development processes copyright 2013 the author 2012 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

single versus multiple supplier sourcing strategies successful supply chain management necessitates an effective sourcing strategy to combat uncertainties in both supply and demand in particular supply disruption results in excessive downtime of production resources upstream and downstream supply chain repercussions and eventually a loss in the market value of the firm in this paper we analyze single period single product sourcing decisions under demand uncertainty our approach integrates product prices supplier costs supplier capacities historical supplier reliabilities and firm specific inventory costs a unique feature of our approach is the integration of a firm specific supplier diversification function we also extend our analysis to examine the impact of minimum supplier order quantities our results indicate that single sourcing is a dominant strategy only when supplier capacities are large relative to the product demand and when the firm does not obtain diversification benefits in other cases we find that multiple sourcing is an optimal sourcing strategy we also characterize a non intuitive trade off between supplier minimum order quantities costs and supplier reliabilities finally we examine the robustness of our results through an extensive numerical analysis of the key parameters of our model

redistributive promises and the adoption of economic reform this paper analyzes the relationship between economic reform and the democratic process to ask the following question does the likelihood of adoption of an economic reform increase with an increase in the efficiency benefits from that reform a priori we might expect that this likelihood should increase monotonically for two reasons first economic reform results in an increase in the size of the national pie if the government has the ability to make compensatory tax transfers an increase in each citizen s income is possible second a larger economic reform results in a greater number of winners this might also be expected to reinforce the political support for economic reform so we should expect a reform with greater efficiency benefits to a larger population to have a greater chance of adoption by the government however in this paper we show that this intuition is mistaken in particular we demonstrate that there exists a certain non monotonicity between the distribution of winners from economic reform and the probability of its adoption an increase in the number of winners may lower rather than increase the likelihood of adoption of economic reform in particular even though reforms that benefit a minority or an overwhelming majority are adopted reforms that benefit a smaller majority are not adopted

a positive theory of flexibility in accounting standards abstract we develop a positive theory of accounting standards when standards generate network externalities and differ in the amount of reporting discretion or flexibility they provide firms we evaluate expected value maximizing firms preferences between two standards regimes rigid and flexible as the number of firms subject to each standard varies as the organization of the securities market varies and as the mapping from the underlying economics of the firms transactions to the accounting reports produced under the two standards vary we also compare firms preferences between the two regimes to the preferences of profit maximizing traders in the firms securities

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

the economics of convention c onventions regulate much of economic and social life yet they have received surprisingly little attention from economists by a convention we mean a pattern of behavior that is customary expected and self enforcing everyone conforms everyone expects others to conform and everyone has good reason to conform because conforming is in each person s best interest when everyone else plans to conform lewis 1969 familiar examples include following rules of the road adhering to conventional codes of dress and using words with their conventional meanings conventions with direct economic implications include species of money and credit industrial and technological standards accounting rules and forms of economic contracts indeed it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention the main feature of a convention is that out of a host of conceivable choices only one is actually used this fact also explains why conventions are needed they resolve problems of indeterminacy in interactions that have multiple equilibria indeed from a formal point of view we may define a convention as an equilibrium that everyone expects in interactions that have more than one equilibrium the economic significance of conventions is that they reduce transaction costs imagine the inconvenience if whenever two vehicles approached one another the important exceptions are sugden 1986 and ullman margalit 1977 the interested reader might also refer to the symposium on social norms that appeared in the fall 1989 issue of this journal with articles by sugden 1989 and elster 1989

from populism to neoliberalism labor unions and market reforms in latin america in the late 1980s populist labor parties which had advanced protectionism and state intervention in the postwar period implemented market oriented reforms in argentina mexico and venezuela in all three countries market reforms hurt their union allies the interaction between allied unions and governing labor parties however varied across countries and across sectors within the same country while some unions endorsed neoliberal reforms others rejected them despite their long term alliance with governing parties while some unions obtained concessions others failed to do so this article argues that the incentives created by partisan loyalties partisan competition and union competition explain these interactions partisan loyalty results from the long term affiliation of unions with a political party partisan competition takes place among union leaders affiliated with different political parties for the control of unions union competition occurs in diverse national and sectoral contexts among labor organizations for the representation of the same workers loyalty derived from a long term affiliation with the incumbent party facilitates collaboration between labor unions and the government yet if partisan competition makes loyal union leaders afraid of being replaced by activists affiliated with the opposition parties their incentives for militancy increase as a way of showing their responsiveness to the rank and file hurt by market reforms union competition for the representation of the same workers makes coordination more difficult thereby weakening unions and making them less likely to obtain concessions from the government despite their partisan loyalty the article presents empirical evidence from eighteen cases including national confederations and individual unions in five economic sectors in argentina mexico and venezuela to test this theory

electoral competition under the threat of political unrest this paper examines how voting and the outcomesof majority rule elections are affected by factors beyond the control of the winning party we present a model that helps to predict how threats against the electoral process ineuence 1 platform choice by political parties 2 which party wins the election and 3 the policy outcomes enally implemented in a democracy where the majority winner sets policy dissatiseed groups including groups outside the electoral process may still be able to interfere with that policy a losing party may organize a coup voters may riot unions may go on strike investors may take their capital abroad terrorists and foreign powers may threaten disruption and loss of life foreign powers may withdraw aid or even impose a trade embargo we analyze the effect of these nonelectoral factors on electoral outcomes we consider a majority rule electoral competition between two political parties with ideal policies lying to either side of the median voter s ideal policy we allow for only a one dimensional policy space but the disruption possibility leads to a twodimensional outcome space as evident in the examples given above the actors threaten

strategic investments with spillovers vertical integration and foreclosure in the broadband access market abstract we analyse competition between two retailers of broadband access when they differ in their ability to offer value added services one retailer is vertically integrated and controls the input market for local access this firm invests to increase the input quality upgrading to broadband before an access price regulation is set we first show that access price regulation may lower consumer surplus and welfare if retailers do not differ too much second if the integrated firm s ability to offer value added services is much higher than that of the rival the integrated firm uses overinvestment as an alternative foreclosure tool

effects of sourcing structure on performance in a multiple product assemble to order supply chain abstract this paper addresses the strategic pricing decisions of a decentralized assemble to order system and the effects of sourcing structure on system performance we consider an assemble to order system consisting of two substitute products and three components manufactured by different suppliers demand for the products is price sensitive the selling prices for the products are jointly determined by firms in the system we study the system under both centralized and decentralized decision making situations for the centralized system we demonstrate that there exists a unique optimal pricing solution for the decentralized system we show that there exists a unique nash equilibrium in the players pricing game we further analyze the effects of different sourcing structures on the system performance and the assembler s performance we find that reduction of suppliers in the system does not guarantee improvement of system performance different sourcing structures have different impacts on performance when the two dedicated components are sourced from a single supplier and the common component is sourced from another independent supplier the system and the assembler s performance become worse we show that the decentralized system can be effectively coordinated and the system performance can be improved with a simple profit sharing contract finally we provide comprehensive numerical examples to demonstrate some important managerial insights

product compatibility as a signal of quality in a market with network externalities abstract in this paper i consider the compatibility decision as a signaling device of the quality of a newly introduced technology of which users are not informed provided that firms are located sufficiently far apart in hotelling s 0 1 interval i find separating equilibria where low compatibility signals high quality this possible separation is due to the fact that low compatibility is more advantageous to the high quality entrant than to the low quality entrant since it can prevent users of the established technology from enjoying network benefits from the new technology very much

the inefficient use of power costly conflict with complete information recent work across a wide range of issues in political economy as well as in american comparative and international politics tries to explain the inefficient use of power revolutions civil wars high levels of public debt international conflict and costly policy insulation in terms of commitment problems this paper shows that a common mechanism is at work in a number of these diverse studies this common mechanism provides a more general formulation of a type of commitment problem that can arise in many different substantive settings the present analysis then formalizes this mechanism as an inefficiency condition that ensures that all of the equilibria of a stochastic game are inefficient this condition has a natural substantive interpretation large rapid changes in the actors relative power measured in terms of their minmax payoffs may cause inefficiency

demand side reactive strategies for supply disruptions in a multiple product system abstract this research examines demand side reactive strategies for supply disruption in a multiple assemble to order system we consider an assemble to order system with two substitute products where the demand is price sensitive and disruption sensitive two different supply disruption situations are examined disruption of the low value component and disruption of the high value component we propose and compare the performance of four reactive strategies for managing supply disruptions namely the backordering strategy the upgrading downgrading strategy the compensation strategy and the mixed strategy we find that the compensation strategy and the mixed strategy can keep more customers than the backordering strategy and the upgrading strategy during the supply disruption of the low value product for the disruption of the high value product the total number of customers keeps constant but it does lead to the reallocation of customers among the products we find that the mixed strategy is the best reactive strategy and the backordering strategy is the worst one among the four reactive strategies