optimal pricing shipment and payment policy for an integrated supplier buyer inventory model with two part trade credit abstract in this article we develop an integrated supplier buyer inventory model with the assumption that the market demand is sensitive to the retail price and the supplier adopts a trade credit policy the trade credit policy discussed in this paper is a two part strategy cash discount and delayed payment that is if the buyer pays within m1 the buyer receives a cash discount otherwise the full purchasing price must be paid before m2 where m 2 m 1 0 the objective of this research is to determine the optimal pricing ordering shipping and payment policy to maximize the joint expected total profit per unit time an iterative algorithm is established to obtain the optimal strategy furthermore numerical examples and sensitivity analysis are presented to illustrate the results of the proposed model and to draw managerial insights

fixed production capacity menu cost and the output inflation relationship this paper analyses the impact of inflation when firms face frictions in both price and quantity adjustments a vast literature examines the consequences of price adjustment costs assuming frictionless quantity adjustments however temporary quantity adjustments may be expensive for example because continual adjustments of the optimal production plant are impossible moreover recent findings suggest that frictions in quantity adjustment may remove the linkage between output and inflation in this paper we show that this is not the case when inflation is anticipated on the contrary a predetermined production capacity may significantly amplify the consequences of price adjustment costs

integrated inventory models considering the two level trade credit policy and a price negotiation scheme abstract this paper develops the integrated inventory models with permissible delay in payment in which customers demand is sensitive to the buyer s price the models consider the two level trade credit policy in the vendor buyer and buyer customer relationships in supply chain management a simple recursive solution procedure is proposed for the integrated models to determine the buyer s optimal pricing and production order strategy although the total profit from the buyer and vendor increases together the buyer s share lessens to compensate the buyer s loss due to the cooperative relationship a negotiation system is presented in order to allocate the profit increase to the vendor and buyer to determine the pricing and production order strategy a numerical example and sensitivity analysis are provided to illustrate the proposed model the results indicate that the total profit from the buyer and vendor together can increase although a price discount is given to the buyer in the proposed models

minimum price variations discrete bid ask spreads and quotation sizes exchange minimum price variation regulations create discrete bid ask spreads if the minimum quotable spread exceeds the spread that otherwise would be quoted spreads will be wide and the number of shares offered at the bid and ask may be large a cross sectional discrete spread model is estimated by using intraday stock quotation spread frequencies the results are used to project 1 16 spread usage frequencies given a 1 16 tick projected changes in quotation sizes and in trade volumes are obtained from regression models for stocks priced under 10 the models predict spreads would decrease 38 percent quotation sizes would decrease 16 percent and daily volume would increase 34 percent article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

inflation costly price and quantity adjustments and time spent in the keynesian regime abstract this paper considers a menu cost firm under inflation due to costly quantity adjustments the firm is sometimes in a keynesian regime where sales are demand determined with a positive real interest rate the proportion of time in the keynesian regime is less than the inverse of the absolute value of the average elasticity of demand in that regime

when does the prime rate change abstract we study the frequency of prime rate changes we model the prime rate as a time series variable that can be changed only at some cost this yields a logit model in which the probability of a prime rate change is a function of market variables we test this model using data from a micro data set that gives the dating of prime rate changes the results indicate that adjustment costs are important to the prime rate adjustment process and that changes in exogenous variables have a significantly larger effect on the probability of a prime rate increase than decrease

an experimental investigation of the patterns of international trade this study is the first attempt to create and study a laboratory economy with some of the prominent features of an international economic system the concept of multiple countries in which each country has its own technology preferences and resource endowments is introduced and operationalized the questions posed in the study are related to the law of comparative advantage factor price equalization terms of trade efficiency in production and exchange as guided by multiple and interacting markets and the effects of tariffs on international transactions the study builds on previous work in the experimental study of general equilibrium phenomena

price adjustment costs and the effect of endogenous technique on price stickiness abstract this paper analyzes a monopolistic firm s pricing and choice of technique decisions when it faces a random demand and must incur a fixed menu cost to adjust its price to demand shocks we show that price adjustment costs have the same effect as an increase in the variability of demand in that the firm will choose a technique yielding a flatter short term marginal cost curve making the production technique endogenous widens the range of demand shifts that will be accommodated with an unchanged price it allows for less price variation and more quantity variation when it is profitable to pay the menu cost and adjust the price

do the new keynesian microfoundations rationalise stabilisation policy systematic monetary policy is analysed in a two period extension of standard static new keynesian models it is shown that countercyclical policies increase the band of inaction of the price setters and that this feedback effect on price rigidity may make such policies self justifying that is the policies themselves cause the fluctuations that they are stabilising moreover countercyclical policies may in general reduce welfare in fact socially optimal policies may very well involve a commitment to enhance shocks

a review of trade credit literature opportunities for research in operations abstract trade credit arises when a buyer delays payment for purchased goods or services its nature has predominantly been an area of inquiry for researchers from the disciplines of finance marketing and economics but it has received relatively little attention in other domains in our article we provide an integrative review of the existing literature and discuss conflicting study outcomes we organize the relevant literature into seven areas of inquiry and analyze four in detail trade credit motives order quantity decisions credit term decisions and settlement period decisions additionally we derive a detailed agenda for future research in these areas

optimal strategy for an integrated system with variable production rate when the freight rate and trade credit are both linked to the order quantity abstract this paper presents an integrated inventory model with variable production rate and price sensitive demand rate the buyer s purchases trade credit linked to the order quantity offered by the supplier in addition the buyer pays the freight charge according to a weight schedule this paper attempts to offer a best policy that aims at maximizing the joint total profit while the trade credit and freight rate are simultaneously linked to the order quantity the same policy also incorporates considerations on the optimal retail price order quantity and delivery decision we provide possible solutions for the buyer and the supplier to collaboratively agree on inventory control warehouse management transportation logistics delivery and billing our study demonstrates that significant profit increase for the entire supply chain can be achieved by linking both trade credit policy and freight rate policy to order quantities an algorithm is furnished to determine the optimal solution in addition numerical examples and sensitivity analysis are presented to illustrate the theoretical results

trade credit and informational asymmetry commonly used trade credit terms implicitly define a high interest rate that operates as an efficient screening device where information about buyer default risk is asymmetrically held by offering trade credit a seller can identify prospective defaults more quickly than if financial institutions were the sole providers of short term financing the information is valuable in cases where the seller has made nonsalvageable investments in buyers since it enables the seller to take actions to protect such investments traditional explanations for the widespread use of trade credit fall into two categories the financing motive holds that capital market imperfections enable sellers to finance buyer purchases at lower cost than financial institutions ferris 4 argues that trade credit provides payment flexibility and thus reduces the overall need for buyers and sellers to maintain precautionary balances emery 3 contends that noncompetitive rents of financial institutions can be circumvented by sellers and buyers through provision of trade credit however the financing motive is not sufficient to explain why small suppliers offer trade credit the wide cross sectional variation in terms or why large buyers often take the prompt payment discount late a second set of explanations is best described as pricing motivations for trade credit provision nadiri 10 argues that availability of alternative payment terms can increase product demand but does not indicate why the offered terms could not be duplicated by financial institutions schwartz and whitcomb 14 argue that trade credit is used to circumvent robinson patman and similar prohibitions on price discrimination the correctness of this position depends on the charge to users of trade credit exceeding the cost of provision by the seller although the explanation is possible in principle an empirical question remains as to why variations in actual credit terms appear to be based on product market rather than buyer characteristics the literature also contains analyses of the impact of changing macroeconomic conditions on trade credit terms and aggregate credit flows schwartz 13 for example employs a financing motive for trade credit to conclude that restrictive monetary policy can be partly mitigated by liberalization of trade credit terms by firms with relatively easy access to capital markets however a microeconomic

are prices too sticky nominal price rigidity has a negative externality rigidity in one firm s price increases the variability of aggregate real spending which harms all firms this paper investigates whether this externality is large which would imply that stabilization policy can be highly beneficial even if the costs of making prices flexible are small there are three conclusions first both the private cost of price rigidity and the externality are second order in the size of fluctuations second the externality can nonetheless be arbitrarily large third in a simple model the externality is small for plausible parameter values

why trading speed matters a tale of queue rationing under price controls we show that queue rationing under price controls is one driver of high frequency trading uniform tick sizes constrain price competition and create rents for liquidity provision particularly for securities with lower prices the time priority rule allocates rents to high frequency traders hfts because of their speed advantage an increase in relative tick size defined as uniform tick sizes divided by security prices increases the fraction of liquidity provided by hfts but harms liquidity we find that the message to trade ratio is a poor cross sectional proxy for hfts liquidity provision stocks with more liquidity provided by hfts have lower message to trade ratios received september 15 2015 editorial decision october 7 2017 by editor robin greenwood

do inventory and gross margin data improve sales forecasts for u s public retailers firm level sales forecasts for retailers can be improved if we incorporate cost of goods sold inventory and gross margin defined by us as the ratio of sales to cost of goods sold as three endogenous variables we construct a simultaneous equations model estimated using public financial and nonfinancial data to provide joint forecasts of annual cost of goods sold inventory and gross margin for retailers using historical data we show that sales forecasts from this model are more accurate than consensus forecasts from equity analysts further the residuals from this model for one fiscal year are used to predict retailers for whom the relative advantage of model forecasts over consensus forecasts would be large in the next fiscal year our results show that historical inventory and gross margin contain information useful to forecast sales and that equity analysts do not fully utilize this information in their sales forecasts

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

price controls and the behavior of auction markets an experimental examination price ceilings and price floors are common in all market systems the ancient greeks and hellenistic era egyptians are known to have utilized price controls see h michele p 272 and j p levy p 41 and numerous public policy questions today involve them apparently for as long as price controls have existed their effects have been debated for example diocletion s favorable view of his price ceilings was disputed by the religious philosopher lactantius who charged that the policy led to scarcity and low grade articles p 145

markups and the welfare cost of business cycles a reappraisal gali et al 2007 have recently shown quantitatively that fluctuations in the efficiency of resource allocation do not generate sizable welfare costs in their economy which is distorted by monopolistic competition in the steady state we show that they underestimate the welfare cost of these fluctuations by ignoring the negative effect of aggregate volatility on average consumption and leisure as monopolistic suppliers both firms and workers aim to preserve their expected markups the interaction between aggregate fluctuations and price setting behavior results in average consumption and employment levels that are lower than their counterparts in the flexible price economy this level effect increases the efficiency cost of business cycles it is all the more sizable with the degree of inefficiency in the steady state lower labor supply elasticities and when prices instead of wages are rigid

an eoq model with noninstantaneous receipt and exponentially deteriorating items under two level trade credit abstract this paper considers the impact of the trade credit policy on the classical economic production quantity epq model for an item subject to exponential decays essentially this study focuses on an exponentially deteriorating item under the conditions of the retailer receiving the supplier trade credit and providing the customer trade credit simultaneously so as to minimize the average total cost a theorem is developed to determine the optimal replenishment policies the main contribution to literature is the inclusion of the latter type of payment delay finally through numerical examples sensitive analysis shows the influence of key model parameters

monetary neutrality under evolutionary dominance of bounded rationality i introduction a key property of the dynamic relationship between money and output is that due to price stickiness monetary shocks have persistent although not permanent impacts on the real output see e g christiano eichenbaum and evans 1999 the nominal adjustment of the aggregate price level in response to a monetary shock is therefore temporarily incomplete and considerable supporting empirical evidence for price rigidity has been found in several microprice studies see e g nakamura and steinsson 2013 and klenow and malin 2011 for comprehensive discussions of these studies mankiw and reis 2002 develop a novel model of temporarily incomplete nominal adjustment based on the assumption that costly information disseminates slowly in each period a random fraction of the price setters updates itself on the state of the economy so as to compute and set the optimal price while the remaining fraction keeps setting prices based on outdated information they admit that micro foundations for price stickiness may require a better understanding of bounded rationality and that information processing is more complex than the time contingent adjustment assumed in their paper in fact as added in mankiw and reis 2011 while the cost of acquiring information may be small and may even have fallen in this information age the costs of absorbing and processing information may be rather large and actually higher today than those in the past this paper contributes to the intuition on price setting under bounded rationality by developing a model in which the share of firms that have up to date information on relative prices to establish the optimal price follows evolutionary dynamics with and without mutation and not a random dynamics a la calvo 1983 as in mankiw and reis 2002 and the related literature our aim is to devise evolutionary game theoretic dynamics to provide alternative microfoundations for a temporarily incomplete nominal adjustment following a monetary shock we investigate the behavior of the general price level in an economy in which an individual firm can either pay a cost featuring a random component to update its information set and establish the optimal price nash strategy or freely use full information from the previous period and set a one period lagged optimal price bounded rationality strategy indeed detailed empirical studies such as the investigation for the euro zone by alvarez et al 2006 have found persistent coexistence of forward looking and backward looking price setting behavior and there is also robust empirical evidence showing persistent and time varying heterogeneity both in the frequency and in the extent of information updating see e g branch 2007 coibion and gorodnichenko 2012 we then devise evolutionary game theoretic microdynamics in discrete time that by interacting with the dynamics of the macroeconomic variables affects the coevolution of the frequency distribution of information updating strategies across firms and the completeness of the nominal adjustment of the general price level to a monetary shock our model economy is composed of monopolistically competitive firms whose individual optimal price depends positively upon the prices set by others implying the existence of strategic complementarity in a given period there is a fraction of firms that set prices without perfect knowledge of the structure of relative prices and hence of the prices that other firms will be setting as they decide not to pay the information cost involved in knowing it we refer to these firms as boundedly rational firms the remaining fraction is composed of firms that decide to incur the information updating cost to obtain that perfect knowledge and we follow droste hommes and tuinstra 2002 in referring to them as nash firms as they become perfect foresight firms meanwhile the optimal price is assumed to be given as in ball and romer 1991 varying positively with the actual general price level and nominal stock of money which is publicly known

shrinking money the demand for money and the nonneutrality of money abstract we evaluate the macroeconomic implications of post world war ii money demand changes in two business cycle models the limited participation model and the sticky price model the sticky price model is invariant to changes in money demands however the limited participation model predicts the effect of a money shock on output rose by 100 percent between 1952 and 1980 and subsequently fell 65 percent this prediction is hard to reconcile with evidence that suggests the effects of monetary shocks are stable over time and suggests that goods market imperfections rather than asset market imperfections may be the driving force behind postwar u s monetary nonneutrality

the empirical role of the exchange rate on the crude oil price formation this paper adopts a novel empirical approach to the crude oil price formation for the purpose of understanding the price reactions of opec member countries to changes in the exchange rate of the us dollar against other major currencies and prices of other members the results are broadly consistent with the view of the absence of a unified opec determined price in the international crude market literature in addition the results also highlight a cross regional dimension of the crude oil market

coordination and profit sharing between a manufacturer and a buyer with target profit under credit option several studies have focused on buyer vendor coordination through quantity discount credit option mechanism but few quantitative models and investigations are available that have explored the mechanism for transfer of surplus generated due to coordination in this paper we develop a coordination mechanism through credit option such that both the parties can divide the surplus equitably after satisfying their own profit targets two situations are explored here in the first situation both the parties have no individual profit target from the business whereas in the second situation there are individual profit target for both the parties the proposed mechanism for division of surplus is studied through a numerical study and the impact of different parameter values on the results are examined

value of information in capacitated supply chains we incorporate information flow between a supplier and a retailer in a two echelon model that captures the capacitated setting of a typical supply chain we consider three situations 1 a traditional model where there is no information to the supplier prior to a demand to him except for past data 2 the supplier knows the s s policy used by the retailer as well as the end item demand distribution and 3 the supplier has full information about the state of the retailer order up to policies continue to be optimal for models with information flow for the finite horizon the infinite horizon discounted and the infinite horizon average cost cases study of these three models enables us to understand the relationships between capacity inventory and information at the supplier level as well as how they are affected by the retailer s s s values and end item demand distribution we estimate the savings at the supplier due to information flow and study when information is most beneficial

stability and competitive equilibrium in trading networks we introduce a model in which agents in a network can trade via bilateral contracts we find that when continuous transfers are allowed and utilities are quasi linear the full substitutability of preferences is sufficient to guarantee the existence of stable outcomes for any underlying network structure furthermore the set of stable outcomes is essentially equivalent to the set of competitive equilibria and all stable outcomes are in the core and are efficient by contrast for any domain of preferences strictly larger than that of full substitutability the existence of stable outcomes and competitive equilibria cannot be guaranteed

optimal inventory policy with noninstantaneous receipt under trade credit abstract in the last two decades the models for inventory replenishment policies under trade credit have been widely studied by several researchers however the extant papers only consider the effects of permissible delay in payments in the inventory systems in some situations the supplier also may offer a cash discount to encourage retailer to pay for his purchases quickly on the other hand an inventory model with instantaneous receipt is not a common feature in actual practice for generality this study develops an inventory model with noninstantaneous receipt under trade credit in which the supplier provides not only a permissible delay but also a cash discount to the retailer we then characterize the optimal solution and provide an easy to use criterion to find the optimal order strategies finally several numerical examples are presented to illustrate the theoretical results

trade credit and credit rationing asymmetric information between banks and firms can preclude financing of valuable projects trade credit alleviates this problem by incorporating in the lending relation the private information held by suppliers about their customers incentive compatibility conditions prevent collusion between two of the agents e g the buyer and the seller against the third e g the bank consistent with the empirical findings of petersen and rajan 1995 firms without relationships with banks resort more to trade credit and sellers with greater ability to generate cash lows provide more trade credit finally small firms react to monetary contractions by using trade credit consistent with the empirical results of nilsen 1994 article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

output and welfare effects of inflation with costly price and quantity adjustments there exists by now a burgeoning literature concerned with the consequences of a fixed cost of price adjustment due to this cost a monopolistic firm does not necessarily adjust its price even though the current price deviates from the price that would maximize the firm s current profit as a result the production generally differs from what it would be in the absence of a menu cost with the effect of inflation on the average output and welfare under monopolistic competition being ambiguous and depending in a complicated way on the profit and demand functions 1 however one strong result holds unambiguously for all profit and demand functions at low inflation rates the average output and welfare are above their levels at full price stability where firms charge the static monopoly price 2 the driving force is that discounting makes a firm more concerned with its real profits earlier in a period with a constant nominal price than with its real profits later in the period in fact as the inflation rate approaches zero the firm s initial real price converges to the profit maximizing real price while the terminal real price converges to a smaller real price at low inflation rates therefore a firm s price is most of the time below the price that would maximize the current profit since output and welfare under monopolistic competition are inversely related to price average output and welfare are higher than under full price stability the inevitable conclusion is that the economy benefits from a little bit of inflation a critical assumption underlying this result is that firms can continuously adjust their production to satisfy demand so while the menu cost literature explicitly assumes that there is a small fixed cost incurred at each price adjustment it also implicitly assumes that it is costless to continuously adjust the quantity of output 3 this is however a questionable assumption there is some empirical evidence indicating the existence of a cost of quantity adjustment part of which is fixed in that it does not depend on the size of the adjustment 4 the cost of quantity adjustment stems from the need to rearrange and reorganize the factor inputs for the new level of production and includes managerial time and effort a fixed cost of quantity adjustment rules out any continuous adjustment of the production to satisfy the increasing demand that results from a decreasing real price within a period with a constant nominal price under the reasonable assumption that the menu cost does not exceed the fixed cost of quantity adjustment 5 in an inflationary environment a firm chooses to adjust its nomi

trade credit and productive efficiency in developing countries abstract in developing countries credit shortages are often so severe as to impact a firm s day to day production decisions using firm level data from five african countries i show supplier credit is positively correlated with capacity utilization the result continues to hold when credit access is instrumented using supplier characteristics i claim that this is because firms lacking credit likely face inventory shortages leading to lower rates of capacity utilization this explanation yields several further predictions that are supported by the data there is a positive relationship between supplier credit and inventory holdings moreover raw materials stockouts are positively correlated with capacity utilization particularly in inventory intensive industries

on the infrequent adjustment of price by firms i introduction recent research by blinder 1991 indicates that as many as 75 percent of all firms change price no more than twice a year according to the wall street journal these findings seem to have caused considerable surprise 1 there is however nothing unusual about these results infrequent price adjustment by firms can be readily explained by the existence of very small price adjustment or menu costs and the fact that deviations from optimal price adjustment policies often result in negligible reductions in a firm s average rate of profit this paper brings together in a dynamic setting two ingredients in the literature that have previously been linked only in a static framework the small menu cost argument of mankiw 1985 and the near rational argument of akerlof and yellen 1985 numerical examples are used to answer the familiar objection that price adjustment costs are too small to be important the main conclusions of the paper remain valid for a wide variety of plausible parameter values and do not depend on extreme assumptions concerning the flatness of the firm s profit function the basic insight that under imperfect competition first order deviations from optimal behavior imply second order losses was first made by bowley 1924 25 this idea was further developed by akerlof and yellen 1985 since the firm s profit function is flat at its maximum point failure to adjust price in response to small exogenous shocks implies very small losses even if price adjustment is costless if there are some costs associated with changing price a policy of rigid prices in the face of small nominal shocks may be optimal this would seem to provide a micro explanation for sticky prices these ideas are usually expounded in the framework of a static two period model 2 further the conclusions reached are only valid for small deviations from optimal behavior the present paper extends the argument to a dynamic framework of continual inflation and its conclusions are shown to remain valid for large deviations from optimal pricing policies 3 the paper makes two main points first very small price adjustment costs often lead to surprising long intervals between price changes even when the length of this interval is chosen optimally second the loss of profits suffered by the firm when the interval between price changes is much greater than the optimal value is often negligible large deviations from optimal policies typically imply very small losses this is a much stronger claim than the familiar argument that small deviations from optimality imply second order losses and it does not follow from the envelope theorem if a firm adopts a simple rule of say changing price twice a year regardless of the inflation rate it may earn a level of profit practically indistinguishable from that it would earn if it behaved optimally at least for inflation rates experienced in the western democracies since world war ii the standard objection to the menu cost explanation of infrequent price adjustment is that these costs are much too small to explain observed pricing behavior the examples presented below show that this objection can be discounted seemingly trivial price adjustment costs as small as one millionth of the firm s annual revenue can explain price adjustment frequencies as low as once or twice a year at inflation rates of 20 percent per annum and above part of the explanation concerns the flatness of the firm s profit function over a wide range of plausible values of demand and cost parameters profit functions are sufficiently flat to explain observed frequencies of price adjustment even when the interval between price changes is optimal but there is more too it than this large deviations from optimal price adjustment policies imply surprisingly small losses even for profit functions that would never be described as flat in particular the loss in profit caused by large deviations in the interval between price changes from its optimal value are normally very small

an eoq model under retailer partial trade credit policy in supply chain abstract the main purpose of this paper is to investigate the retailer s inventory policy under two levels of trade credit to reflect the supply chain management situation in this paper we assume that the retailer has the powerful decision making right so we extend the assumption that the retailer can obtain the full trade credit offered by the supplier and the retailer just offers the partial trade credit to his her customer then we investigate the retailer s inventory system as a cost minimization problem to determine the retailer s optimal inventory policy under the supply chain management two easy to use theorems are developed to efficiently determine the optimal inventory policy for the retailer we deduce some previously published results of other researchers as special cases finally numerical examples are given to illustrate the theorems and obtain a lot of managerial phenomena

optimal price discounting and lot sizing policies for perishable items in a supply chain under advance payment scheme and two echelon trade credits abstract many researchers have assumed that a retailer announces price discount to motivate market sales when he has competition in markets unanticipated surplus in inventory or change in the production run of a product but in real life situations there are retailers who announce price discount offer under advance payment ap scheme prior to the selling period due to the advancement of internet and on line money transactions the ap scheme is common and useful to decrease the estimation error in demand and to increase the market sales when the items are arrived to the inventory the priority will be given to the customers who use ap scheme this paper considers a supply chain where the supplier provides the retailer a full trade credit period for payments whereas the retailer offers the partial trade credit to his customers i intend to develop an economic order quantity eoq based model with perishable items in order to investigate the retailer s inventory system as a cost minimization problem under ap scheme and two echelon trade credit option mathematical theorems are developed to determine optimal price discounting and lot sizing policies and a lot of managerial phenomena are obtained through numerical examples

inventory dynamics in process industries an empirical investigation process industry firms have thrived in recent decades but changes in the markets are currently putting both growth and profitability at risk in this context inventory management is increasingly viewed as an essential lever for creating a sustainable competitive advantage despite this many firms struggle to implement best practices because of industry specific constraints this research explores how seven fundamental characteristics of process industries drive inventory performance we empirically investigate four process industries and four peer industries using financial accounting credit rating stock market and trading data and implement a seemingly unrelated regression sur equations model our results show that capital intensity capital costs transportation costs delivery time price volatility demand uncertainty and gross margin directly affect a company s degree of freedom in terms of inventory management and illustrate that inventory management in process industries follows different dynamics this study enhances the understanding of inventory drivers and gives practitioners a tool to guide future improvement efforts

trade execution costs and market quality after decimalization this study assesses trade execution costs and market quality for nyse and nasdaq stocks before and after the 2001 change to decimal pricing several theoretical predictions are confirmed quoted bid ask spreads declined substantially on each market with the largest declines for heavily traded stocks the percentage of shares receiving price improvement increased on the nyse but not on nasdaq however those trades completed at prices within or outside the quotes were improved or disimproved by smaller amounts after decimalization and trades completed outside the quotes saw the largest reductions in trade execution costs as a class effective bid ask spreads as a percentage of share price arguably the most relevant measure of execution costs for smaller trades averaged 0 33 on a volume weighted basis after decimalization for both nyse and nasdaq stocks there is no evidence of systematic intraday reversals of quote changes on either market as would be expected if decimalization had damaged liquidity supply

a transactions theory of trade credit use this paper derives a transactions theory of trade credit use from the motives of trading partners to economize on the joint costs of exchange in the formal analysis uncertain delivery time is used to generate a demand by firms to hold inventories of both goods and money trade credit is viewed as a mechanism that separates the exchange of money from the uncertainty present in the exchange of goods by forewarning both trading partners of the timing of money flows credit permits a reduction in precautionary money holdings and the more effective management of net money accumulations

macroeconomic externalities are pigovian taxes the answer basic welfare economics tells us that many types of externalities can be remedied by proper use of corrective taxes and subsidies this paper shows that this notion also extends to the macroeconomi

haircuts or hysteresis sources of movements in real exchange rates abstract we empirically assess the importance of two sources of real exchange rate movements in models where ppp holds only among traded goods real exchange rate variation results from relative price movements within countries an alternative explanation relies on hysteretic price setting and nominal exchange rate changes using disaggregated price data from 11 oecd nations we find some support for the non traded goods models for example prices of haircuts in canada and the united states are unrelated in the long run we find stronger evidence to support models that emphasize sticky prices transportation costs or other impediments to frictionless trade

tick size price grids and market performance stable matches as a model of market dynamics and equilibrium abstract the tick size in a financial market is the minimum allowable difference between ask and bid prices by the rules of each exchange no transactions can occur within the tick interval the impact of tick size is an ongoing controversy which we study by experimental methods whose simplicity helps distinguish among competing models of complex real world securities markets we observe patterns predicted by a matching cooperative game model because a price grid interferes with a competitive equilibrium and restrictions on order flow interfere with information aggregation the matching model provides predictions when the competitive model cannot although their predictions are the same when a competitive equilibrium does exist our experiments examine stable allocations average prices timing of order flow information flow and price dynamics larger tick size invites more speculation which in turn increases liquidity however increased speculation leads to inefficient trades that otherwise would not have occurred

the new keynesian synthesis the new keynesians made more rapid progress in understanding the microeconomics of unemployment than in understanding the microeconomics of nominal price rigidity but the past five years have seen important breakthroughs in this second area this paper will describe these breakthroughs discuss our current understanding of nominal rigidity and assess the work that remains to be done

a new keynesian model of policy irrelevance of the developments in macro theory of the last thirty years few have been as far reaching as the introduction of rational expectations in particular to the study of how discretionary use of monetary policy by central bankers affects output and employment by ascribing rational expectations to private agents lucas 11 kydland and prescott 10 barro and gordon 6 alesina and tabellini 1 rogoff 16 and a host of others have demonstrated examples in which agents who understand the motives of the monetary authority will correctly anticipate the monetary authority s actions and render them ineffective in affecting any real variables in these models it is only the innovations in monetary policy which private agents could not forecast that had any real effects systematic use of the tools of monetary policy to achieve an end were ineffective typically these models represented the economy as a reduced form game in which the payoffs to private agents depended on the realizations of actions of the monetary authority agents forecasts of those actions and random shocks imposed by nature it was understood if not always explicitly stated that some general equilibrium model existed whose equilibrium outcomes generated the payoff functions of the game the goal of the monetary authority was to alter the outcome of the game away from the non cooperative equilibrium towards some other outcome which was not consistent with autarkic payoff maximization but superior to the non cooperative outcome each individual agent would maximize his payoff by correctly anticipating the monetary authority s move in the aggregate the result would be that the monetary authority s action would be rendered ineffective

penny pricing and the components of spread and depth changes abstract recent studies show that decimal pricing led to significant reductions in the spread and depth on the nyse in this paper we examine how the observed changes in the spread and depth can be attributed to different factors we show that stocks with higher proportions of one tick spreads and odd sixteenth quotes and more frequent trading before decimalization experienced larger declines in the spread and depth afterwards we interpret this result as evidence of reduced binding constraints and increased price competition under decimal pricing we also find that decimal pricing led to nontrivial changes in select stock attributes and that these changes exerted an additional impact on spreads and depths our results suggest that sub penny pricing may further reduce the spreads of high volume low risk or low price stocks

price relationships in the petroleum market an analysis of crude oil and refined product prices in this paper the relationships between crude oil and refined product prices are investigated in a multivariate framework this allows us to test several partly competing assumptions of earlier studies in particular we find that the crude oil price is weakly exogenous and that the spread is constant in some but not all relationships moreover the multivariate analysis shows that the link between crude oil prices and several refined product prices implies market integration for these refined products this is an example of supply driven market integration and producers will change the output mix in response to price changes

a dynamic economy with costly price adjustments this paper studies a general equilibrium model of a dynamic economy with menu costs each firm s productivity is exposed to idiosyncratic and aggregate productivity shocks around a trend and the money supply to monetary shocks around a trend all consumption pricing and production decisions are based on optimizing behavior there exists a staggered markov perfect equilibrium with prices determined by a two sided s s markup strategy the paper analyzes the optimal markup strategy and investigates the dynamics of the price index and the aggregate output the welfare consequences of the uncertain aggregate productivity and money supply are also examined

a mixed industrial structure magnifies the importance of menu costs new keynesian literature assumes symmetric industrial structure when analysing explanations of money non neutrality this paper analyses the impact of modifying this assumption by allowing for a mixed industrial structure some industries are characterized by monopolistic competition others by perfect competition the mixed industrial structure implies misallocation of labour between the different industries which may contribute to explanations of non neutrality of money following a 5 money increase the menu costs needed for non neutrality may be 40 times smaller and ratio of welfare gain over private loss more than 100 times larger than in the corresponding model with a symmetric structure

quantifying the bullwhip effect using two echelon data a cross industry empirical investigation the bullwhip effect denotes the phenomenon whereby demand variability is amplified from a downstream site buyer to an upstream site supplier in the supply chain this paper contributes to the literature that empirically investigates the bullwhip effect by providing new evidence regarding its prevalence and magnitude in contrast to previous work we use a two echelon approach which allows us to observe variations at both the upstream and the downstream sites by drawing on a financial accounting standard regarding information disclosure about major customers we are able to link 5494 buyers and suppliers in the u s between 1976 and 2009 we merge this information with quarterly financial accounting data to form a sample of 14 933 buyer supplier dyad observations we correct for sample selection bias using propensity score matching and estimate the average bullwhip effect in our sample to be 1 90 i e 90 demand variability amplification between echelons a significant bullwhip effect is observed across industries mining manufacturing wholesale and retail and is supported by several robustness checks we investigate and discuss how these results can be generalized beyond our sample

managing global sourcing inventory performance the use of global suppliers has increased considerably over the last three decades operations management theory establishes that global sourcing requires more units of inventory but since these units are often procured at a lower cost from global suppliers the capital invested in inventory and the consequent financial burden may increase or decrease with global sourcing this study provides rigorous firm level empirical evidence that links the global sourcing practices of public u s firms and their inventory investments we process bill of lading manifests customs forms to extract information on over half a million sea shipments from global suppliers to u s public firms and link this information with quarterly financial data from the compustat database we provide stylized facts on the participation of different firms and sectors in global trade using a simultaneous equation model we find that an increase in global sourcing results in an increase in inventory investment a 10 shift in sourcing from domestic to global suppliers increases the inventory investment by 8 8 for an average firm in our sample we also find that increasing the number of suppliers can mitigate this increase in inventory investment for example going from single to dual sourcing reduces inventory investment by about 11 we illustrate the use of our estimates to identify the impact of changing global sourcing strategy on inventory investment and operational performance metrics this paper was accepted by martin lariviere operations management

a multiechelon inventory model with fixed replenishment intervals this paper develops a new model for studying multiechelon inventory systems with stochastic demand for the model we assume that each site in the system orders at preset times according to an order up to policy that delivery times are deterministic and that the demand processes are stochastic with independent increments we introduce a new scheme for allocating stock in short supply which we call virtual allocation and which permits significant tractability we exercise the model on a set of test problems for two echelon systems to get insight into the structure of good policies the primary findings are that both the central warehouse upper echelon and the retail sites lower echelon should hold safety stock but that most of the safety stock should be at the retail sites consequently the central warehouse will stock out with high probability furthermore we show that the virtual allocation rule is near optimal for the set of test problems

optimal centralized ordering policies in multi echelon inventory systems with correlated demands this paper treats a depot warehouse system in which demand occurs at the warehouse or retail level this work differs from a number of other studies in that we allow item demands to be correlated both across warehouses and also correlated in time our motivation for this generalization arises from our experience with an actual system of this type used by a major national producer and distributor of consumer products we observed both high correlations between successive monthly demands around 0 7 and correlations between demands for an item at different locations also about 0 7 in a given time period we derive an explicit expression for the optimal safety stock as a function of the level of correlation through time the analysis requires two assumptions 1 the allocation assumption and 2 the equal coefficient of variation assumption similar assumptions have been used by other researchers finally numerical evaluations are included to illustrate the impact of the various magnitudes of correlation

the role of taxes as automatic destabilizers in new keynesian economics abstract this paper analyses the effects of taxation in new keynesian economics the results show that taxes contribute to price and wage stickiness and moreover that the resulting fluctuations in welfare are magnified by the presence of taxes these results are at odds with the old keynesian idea of automatic stabilizers

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

insiders outsiders and nominal wage contracts while the consequences of nominal wage contracts have been rather thoroughly analyzed there is no generally accepted theory of why such contracts prevail in this paper i argue that the distinction between insiders and outsiders is important for understanding nominal wage contracts since most employment fluctuations take the form of fluctuations in hiring insiders are normally not affected by them since prices are primarily determined by costs demand shocks have small effects on real wages thus insiders have little incentive to change to more complicated contracts with rigid nominal wages nominal demand shocks have large effects on the employment opportunities of outsiders but outsiders have little influence on labor contracts

understanding price controls and nonprice competition with matching theory we develop a quality competition model to understand how price controls affect market outcomes in buyer seller markets with discrete goods of varying quality while competitive equilibria do not necessarily exist in such markets when price controls are imposed we show that stable outcomes do exist and characterize the set of stable outcomes in the presence of price restrictions in particular we show that price controls induce non price competition price floors induce the trade of inefficiently high quality goods while price ceilings induce the trade of inefficiently low quality goods

anticipated growth and business cycles in matching models in a business cycle model that incorporates a standard matching framework employment increases in response to news shocks even though the wealth effect associated with the increase in expected productivity reduces labor force participation the reason is that the matching friction induces entrepreneurs to increase investment in new projects and vacancies early if there is underinvestment in new projects in the competitive equilibrium then the efficiency gains associated with an increase in employment make it possible that consumption employment output as well as the investment in new and existing projects jointly increase long before the actual increase in productivity materializes if there is no underinvestment then investment in existing projects decreases but total investment consumption employment and output still jointly increase

price controls non price quality competition and the nonexistence of competitive equilibrium we investigate how price ceilings and floors affect outcomes in continuous time double auction markets with discrete goods and multiple qualities when price controls exist the existence of competitive equilibria is no longer guaranteed hence we investigate the nature of non price competition and how markets might evolve in its presence we develop a quality competition model based on matching theory equilibria of the quality competition model always exist in such price constrained markets moreover they naturally correspond to competitive equilibria when competitive equilibria exist additionally we characterize the set of equilibria of the quality competition model in the presence of price restrictions in a series of experiments we find that market outcomes closely conform to the predictions of the model in particular price controls induce non price competition between agents both in theory and in the experimental environment market behaviors result in allocations close to the predictions of the model

interrelating operational and financial performance measurements in inventory control financial supply chain management and working capital management are increasingly receiving attention as important avenues to increase profitability in supply chains by actively managing payment terms and working capital requirements managers can influence financial performance and achieve significant cost savings however measures to improve financial performance implicitly restrict and influence operational performance in our research we elaborate on the benefits of equally considering both operational and financial aspects in decision making for the physical and financial supply chain we develop a mathematical model that determines the optimal purchasing order quantity under working capital restrictions and payment delays we analyze the trade offs between the most commonly used financial and operational measurements such as service level return on investment profit margin and inventory level our results demonstrate the significance of payment delays increases decreases in the upstream downstream payment delays favor the system s operations by decreasing operational costs moreover increases in the working capital employed in the system decrease the total operational cost increase the total financial cost and lower the return on working capital investment c 2009 elsevier b v all rights reserved

retailer s optimal replenishment decisions with credit linked demand under permissible delay in payments abstract usually it is assumed that the supplier would offer a fixed credit period to the retailer but the retailer in turn would not offer any credit period to its customers which is unrealistic because in real practice retailer might offer a credit period to its customers in order to stimulate his own demand moreover it is observed that credit period offered by the retailer to its customers has a positive impact on demand of an item but the impact of credit period on demand has received a very little attention by the researchers to incorporate this phenomenon we assume that demand is linked to credit period offered by the retailer to the customers this paper incorporates the concept of credit linked demand and develops a new inventory model under two levels of trade credit policy to reflect the real life situations an easy to use algorithm is developed to determine the optimal credit as well as replenishment policy jointly for the retailer finally numerical example is presented to illustrate the theoretical results followed by the sensitivity of various parameters on the optimal solution

a joint approach for setting unit price and the length of the credit period for a seller when end demand is price sensitive this paper considers the seller buyer channel in which the end demand is price sensitive and the seller may offer trade credit to the buyer the unit price seller charged by the seller and the length of the credit period offered by the seller to the buyer both influence the final demand for the product hence we consider both to be policy variables for the seller we use the case of no credit as a benchmark in our analysis the paper provides procedures for determiningthe seller s and the buyer s policies under non cooperative as well as cooperative relationships in the non cooperative case we determine for the seller the optimal unit price and the length of the credit period for the cooperative structure we provide a procedure for characterizingpareto efficient solutions r 2002 elsevier science b v all rights reserved

overconfidence subjective perception and pricing behavior abstract we study the implications of overconfidence for price setting in a monopolistic competition setup with incomplete information our price setters overestimate their abilities to infer aggregate shocks from private signals the fraction of uninformed firms is endogenous firms can obtain information by paying a fixed cost we find two results i overconfident firms are less inclined to acquire information relative to the rational benchmark ii prices might exhibit excess volatility driven by non fundamental noise we explore the empirical predictions of our model for idiosyncratic price volatility

an economic order quantity model for deteriorating items with partially permissible delay in payments linked to order quantity abstract to attract more sales suppliers frequently offer a permissible delay in payments if the retailer orders more than or equal to a predetermined quantity w in this paper we generalize goyal s k 1985 eoq under conditions of permissible delay in payments journal of the operational research society 36 335 338 economic order quantity eoq model with permissible delay in payment to reflect the following real world situations 1 the retailer s selling price per unit is significantly higher than unit purchase price 2 the interest rate charged by a bank is not necessarily higher than the retailer s investment return rate 3 many items such as fruits and vegetables deteriorate continuously and 4 the supplier may offer a partial permissible delay in payments even if the order quantity is less than w we then establish the proper mathematical model and derive several theoretical results to determine the optimal solution under various situations and use two approaches to solve this complex inventory problem finally a numerical example is given to illustrate the theoretical results