stability and endogenous formation of inventory transshipment networks this paper studies a cooperative game of inventory transshipment among multiple firms in this game firms first make their inventory decisions independently and then decide collectively how to transship excess inventories to satisfy unmet demands in modeling transshipment we use networks of firms as the primitive which offer a richer representation of relationships among firms by taking the coalitions used in all previous studies as special cases for any given cooperative network we construct a dual price allocation under which the network is stable for any residual demands and supplies in the sense that no firms find it more profitable to form subnetworks under the allocation based on the marginal contribution of each firm to its network called the mjw value we show that various network structures such as complete hub spoke and chain networks are stable only under certain conditions on residual amounts moreover these conditions differ across network structures implying that a network structure plays an important role in establishing the stability of a decentralized transshipment system finally we consider the case when firms establish networks endogenously and show that pairwise nash stable networks underperform the corresponding networks in centralized systems

the cost allocation issue in joint replenishment abstract joint replenishment for several products to achieve a lower inventory logistics cost has been a topic of extensive studies less attention has been paid to the issue of deciding how the joint replenishment costs should be allocated across the individual products ideally when items are ordered together one would require a stable cost allocation such that no subset of products subsidizes another subset when part of each product s ordering cost is product specific and part can be shared with other products like in a 3pl setting of anily and haviv it has been shown that even when a stable allocation exists such an allocation might be difficult to compute in addition usually the components of ordering costs are partially determined using estimates and accounting discretion this paper provides two main insights for determining an appropriate cost allocation it provides the means to test how sensitive a stable cost allocation is to a range of cost parameter values then in a computational study it is shown how to obtain a stable cost allocation without excessive computation

stochastic linear programming games with concave preferences abstract we study stochastic linear programming games a class of stochastic cooperative games whose payoffs under any realization of uncertainty are determined by a specially structured linear program these games can model a variety of settings including inventory centralization and cooperative network fortification we focus on the core of these games under an allocation scheme that determines how payoffs are distributed before the uncertainty is realized and allows for arbitrarily different distributions for each realization of the uncertainty assuming that each player s preferences over random payoffs are represented by a concave monetary utility functional we prove that these games have a nonempty core furthermore by establishing a connection between stochastic linear programming games linear programming games and linear semi infinite programming games we show that an allocation in the core can be computed efficiently under some circumstances

make or buy it is the question a study in the presence of carbon tax abstract in this paper we explore make or buy decision of a manufacturer taking the effect of carbon tax ct into account we characterize the optimal strategies including the production quantity wholesale price and ct rate with the ct rate considered exogenous or endogenous respectively we also examine the optimal make or buy strategies for the manufacturer under different levels of ct rate in addition we conduct an analysis for the government regarding when it should or should not regulate the ct rate with the studies some significant managerial findings are obtained for the make or buy decision making in the presence of ct in particular it is found that in addition to ct rate level the ratio between marginal environmental cost and marginal gross profit of the product without excluding ct can essentially affect whether or not the government should regulate the ct rate

coalitional aggregation of wind power this paper explores scenarios in which independent wind power producers form willing coalitions to exploit the reduction in aggregate power output variability obtainable through geographic diversity in the setting of a two settlement electricity market we examine the advantage gained through optimal coalitional contract offering strategies for quantity risk reduction we show that a group of independent wind power producers can always improve their expected profit by cooperatively offering their aggregated power using coalitional game theory we identify sharing mechanisms to fairly allocate the profits to coalition members we show that the resulting coalitional game is balanced guaranteeing that the core of the game is necessarily nonempty in addition we propose a profit sharing mechanism that minimizes the worst case dissatisfaction to recover an imputation in the core finally we illustrate our theoretical results with empirical studies using data from five representative wind farms in upstate new york

toward the fair sharing of profit in a supply network formation abstract the design of a supply chain network can be interpreted as a coalition formation problem in a cooperative game theory and formulated as a linear production game lpg the companies that are members of the optimal coalition share their manufacturing assets and resources to produce a set of end products and globally maximize their profits by selling them in a market this paper investigates the possibility of combining the requirement of coalition stability with a fair allocation of profits to the participants it is shown that in general the purely competitive allocation mechanism does not exhibit the property of fairness a technique is proposed to construct a stable and fair allocation system when the core of the game does not exclusively contain a set of competitive allocations

stability and monotonicity in newsvendor situations this study considers a supply chain that consists of n retailers each of them facing a newsvendor problem and a supplier groups of retailers might increase their expected joint profit by joint ordering and inventory centralization however we assume that the retailers impose some level of stock that should be dedicated to them in this situation we show that the associated cooperative game has a non empty core afterwards we concentrate on a dynamic situation where several model cost parameters and the retailers dedicated stock levels can change we investigate how the profit division might be affected by these changes we focus on four monotonicity properties we identify several classes of games with retailers where some of the monotonicity properties hold moreover we show that pairs of cooperative games associated with newsvendor situations do not necessarily satisfy these properties in general when changes in dedicated stock levels are in concern

pooling of spare parts between multiple users how to share the benefits companies that maintain capital goods e g airplanes or power plants often face high costs both for holding spare parts and due to downtime of their technical systems these costs can be reduced by pooling common spare parts between multiple companies in the same region but managers may be unsure about how to share the resulting costs or benefits in a fair way that avoids free riders to tackle this problem we study several players each facing a poisson demand process for an expensive low usage item they share a stock point that is controlled by a continuous review base stock policy with full backordering under an optimal base stock level costs consist of penalty costs for backorders and holding costs for on hand stock we propose to allocate the total costs proportional to players demand rates our key result is that this cost allocation rule satisfies many appealing properties it makes all separate participants and subgroups of participants better off it stimulates growth of the pool it can be easily implemented in practice and it induces players to reveal their private information truthfully to obtain these game theoretical results we exploit novel structural properties of the cost function in our s 1 s inventory model

who benefits from transshipment exogenous vs endogenous wholesale prices this paper studies how transshipments affect manufacturers and retailers considering both exogenous and endogenous wholesale prices for a distribution system where a single manufacturer sells to multiple identical cost retailers we consider both the manufacturer being a price taker and the manufacturer being a price setter in a single period setup under multivariate normal demand distribution in the case of the manufacturer being a price taker we provide several analytical results regarding the effects of key parameters on order quantities and profits in the case of the manufacturer being a price setter we characterize the stackelberg game that arises and provide several insights into how the game dynamics are affected by transshipments specifically we find that risk pooling makes retailers order quantities less sensitive to the wholesale price set by the manufacturer hence in general the manufacturer benefits from retailers transshipments by charging a higher wholesale price while retailers are often worse off the paper captures the effect of demand correlation and the effect of the number of retailers throughout and it illustrates the findings by a numerical example we also provide an interactive web page for numerical experiments

strategic investments trading and pricing under forecast updating this paper considers two independent firms that invest in resources such as capacity or inventory based on imperfect market forecasts as time progresses and new information becomes available the firms update their forecasts and have the option to trade their resources the trade contract is determined as the bargaining equilibrium or alternatively as the price equilibrium assuming a fairly general form of the profit functions we characterize the nash equilibrium investment levels which are first best under the price equilibrium trade contract but not under the bargaining equilibrium trade contract to gain additional insights we then focus on firms that face stochastic demand functions with constant price elasticity and have contingent pricing power assuming a general forecast evolution process we characterize the impact of the option to trade and the firms cooperation on equilibrium investments expected prices profits and consumer surplus finally to study the main driving forces of trading we employ a well established and empirically tested forecast updating model in which the forecast evolution process follows a two dimensional geometric brownian motion under this model we prove that the equilibrium investments expected prices profits and consumer surplus are nondecreasing in the quality and timing of forecast revisions in market variability and in foreign exchange volatility but are nonincreasing in market correlation

competition or compensation supplier incentives under the american and japanese subcontracting systems two fundamentally different subcontracting systems arise as distinct solutions to the quality control problem facing an input buyer the american system involves competitive bidding on each contract large orders and inspections the japanese system involves repeat purchases from a supplier who earns a premium small orders and no inspections both systems may coexist as local solutions but the global optimum is determined by the ratio of set up to inspection costs this suggests that the adoption of flexible manufacturing equipment and rising product complexity may be responsible for the shift from the american to the japanese system observed in many industries copyright 1997 by american economic association

modeling cooperation on a class of distribution problems in this paper we study models of cooperation between the nodes of a network that represents a distribution problem the distribution problem we propose arises when over a graph a group of nodes offers certain commodity some other nodes require it and a third group of nodes neither need this material nor offer it but they are strategically relevant to the distribution plan the delivery of one unit of material to a demand node generates a fixed profit and the shipping of the material through the arcs has an associated cost we show that in such a framework cooperation is beneficial for the different parties we prove that the cooperative situation arising from this distribution problem is totally balanced by finding a set of stable allocations in the core of an associated cooperative game in order to overcome certain fairness problems of these solutions we introduce two new solution concepts and study their properties

evolutionary stability of auction and supply chain contracting an analysis based on disintermediation in the indian tea supply chains abstract the purpose of this paper is to show that evolutionary stable market equilibrium is achievable through complete disintermediation of auctioneers if the option of bargaining based supply chain contracting exists the paper analyzes the evolutionary dynamics of a market that caters both the scopes of auction intermediation and supply chain contracting to a set of homogeneous buyers and sellers the motivation of this work developed from the contradiction between the theoretical framework of lu and mcafee 1996 that identifies auction to be evolutionary stable over bargaining and the real instance of sustained disintermediation of auctioneers in the world s largest tea industry in india where supply chain contracting is the other option of trading

sell the plant the impact of contract manufacturing on innovation capacity and profitability in the electronics industry and others original equipment manufacturers oems are selling their production facilities to contract manufacturers cms the cms achieve high capacity utilization through pooling supplying many different oems meanwhile the oems focus on innovation research and development product design and marketing we examine how this change in industry structure affects investment in innovation and capacity and thus profitability in particular innovation is noncontractible so oems will invest less in innovation than is ideal for the industry as a whole hence although contract manufacturing improves capacity utilization it may reduce the profitability of the industry as a whole by weakening the incentives for innovation contract manufacturing is not the only means to achieve capacity pooling alternatively the oems can pool capacity with one another through supply contracts or a joint venture this may result in underinvestment or overinvestment in innovation and capacity but always increases profitability we find that the sale of production facilities to a cm improves profitability for the industry as a whole if and only if oems are subsequently in a strong bargaining position vis a vis the cm if the oems are indeed very strong the gain from pooling capacity via contract manufacturing is maximized in industries with moderate cost of capacity

cooperation between multiple news vendors with transshipments we study a situation with n retailers each of them facing a news vendor problem i e selling to customers over a finite period of time product with a short life cycle such as fashion groups of retailers might improve their expected joint profit by coordinating their orders followed by transshipments after demand realization is known we analyze these situations by defining a cooperative game called a general news vendor game for such a situation with n retailers we concentrate on whether it makes sense to cooperate by studying properties of general news vendor games our main result states that general news vendor games have non empty cores

supply chain choice on the internet internet companies extensively use the practice of drop shipping where the wholesaler stocks and owns the inventory and ships products directly to customers at retailers request under the drop shipping arrangement the supply chain benefits from risk pooling because the inventory for multiple retailers is stocked at the same location the wholesalers another more traditional channel alternative on the internet is one in which retailers stock and own the inventory these two supply chain structures which predominate on the internet result in different inventory risk allocation stocking decisions and profits for channel members moreover the two channel alternatives can be combined into a dual strategy whereby the retailer uses local inventory as a primary source and relies on drop shipping as a backup we model the dual strategy as a noncooperative game among the retailers and the wholesaler analyze it and obtain insights into the structural properties of the equilibrium solution to facilitate development of recommendations for practicing managers finally we characterize situations in which each of three channels is preferable by specifying appropriate ranges of critical parameters including demand variability the number of retailers in the channel wholesale prices and transportation costs

worker heterogeneity job screening and firm size a model of job screening is developed in which firms make wage offers to workers based on an imperfect evaluation of their abilities if large firms have higher costs of acquiring information about workers they screen workers with less accuracy and choose a wage compensation scheme different from the one small firms choose this generates the often observed positive correlation between firm size and wages the model also predicts that wage structure and perhaps wage dispersion will differ by firm size and that individuals who acquire more schooling will also choose to work in a larger firm these hypotheses are tested and supported using data from the national longitudinal survey

cores of inventory centralization games abstract consider a set of n stores with single item and single period demands assume an option of centralized ordering and inventory with holding and penalty costs only in this case a cooperative inventory centralization game defines allocations of the cost we examine the conditions under which such an inventory centralization game has a nonempty core we prove the existence of nonempty core for demands with symmetric distributions and the existence of nonempty core for joint multivariate normal demand distribution we establish the equivalency of four different nonempty core conditions for the newsboy problem and demonstrate their efficacy for discrete independent and identically distributed iid demands journal of economic literature classification numbers c44 c62 c71

supply chain relationships and contracts the impact of repeated interaction on capacity investment and procurement consider a firm developing an innovative product due to market pressures production must begin soon after the product development effort is complete which requires that an upstream supplier invests in capacity while the design of the product and production process are in flux because the product is ill defined at this point in time the firms are unable to write court enforceable contracts that specify the terms of trade or the supplier s capacity investment however the firms can adopt an informal agreement relational contract regarding the terms of trade and capacity investment the potential for future business provides incentive for the firms to adhere to the relational contract we show that the optimal relational contract may be complex requiring the buyer to order more than her demand to indirectly monitor the supplier s capacity investment we propose a simpler relational contract and show that it performs very well for a broad range of parameters finally we identify characteristics of the business environment that make relational contracting particularly valuable

the relational advantages of intermediation this paper provides a novel explanation for the use of supply chain intermediaries we find that even in the absence of the well known transactional and informational advantages of mediation inter

the newsvendor game has a nonempty core we settle an open conjecture regarding the newsvendor game we prove that its core is always non empty for all possible joint distributions of the random demands we give sufficient conditions under which the core is a singleton or it contains non negative elements

surplus division and investment incentives in supply chains a biform game analysis abstract in this paper we use a biform game approach for analyzing the impact of surplus division in supply chains on investment incentives in the first stage of the game firms decide non cooperatively on investments in the second stage the surplus is shared according to the shapley value we find that all firms have inefficiently low investment incentives which however depend on their position in the supply chain cross subsidies for investment costs can mitigate but not eliminate the underinvestment problem vertical integration between at least some firms yields efficient investments but may nevertheless reduce the aggregated payoff of the firms we show how the size of our effects depends on the structure of the supply chain and the efficiency of the investment technology various extensions demonstrate that our results are qualitatively robust

existence of coordinating transshipment prices in a two location inventory model we consider a two location production inventory model where each location makes production decisions and is subject to uncertain capacity each location optimizes its own profits transshipment at a cost is allowed from one location to another we focus on the question of whether one can globally set a pair of coordinating transshipment prices i e payments that each party has to make to the other for the transshipped goods that induce the local decision makers to make inventory and transshipment decisions that are globally optimal a recent paper suggests for a special case of our model that there always exists a unique pair of coordinating transshipment prices we demonstrate through a counterexample that this statement is not correct and derive sufficient and necessary conditions under which it would hold we show that in some conditions coordinating prices may exist for only a narrow range of problem parameters and explore conditions when this can happen finally we study the effects of demand and capacity variability on the magnitude of coordinating transshipment prices

a three stage model for a decentralized distribution system of retailers we present and study a three stage model of a decentralized distribution system consisting ofn retailers each of whom faces a stochastic demand for an identical product in the first stage before the demand is realized each retailer independently orders her initial inventory in the second stage after the demand is realized each retailer decides how much of her residual supply demand she wants to share with the other retailers in the third stage residual inventories are transshipped to meet residual demands and an additional profit is allocated our model is an extension of the two stage model of anupindi et al abz 2001 which implicitly assumes that all residuals enter the transshipment stage we show however that allocation rules in the third stage based on dual solutions which were used in the abz model may induce the retailers to hold back some of their residual supply demand in general we study the effect of implementing various allocations rules in the third stage on the values of the residual supply demand the retailers are willing to share with others in the second stage and the trade off involved in achieving an optimal solution for the corresponding centralized system

coordinating investment production and subcontracting we value the option of subcontracting to improve financial performance and system coordination by analyzing a competitive stochastic investment game with recourse the manufacturer and subcontractor decide separately on their capacity investment levels then demand uncertainty is resolved and both parties have the option to subcontract when deciding on their production and sales we analyze and present outsourcing conditions for three contract types 1 price only contracts where an ex ante transfer price is set for each unit supplied by the subcontractor 2 incomplete contracts where both parties negotiate over the subcontracting transfer and 3 state dependent price only and incomplete contracts for which we show an equivalence result while subcontracting with these three contract types can coordinate production decisions in the supply system only state dependent contracts can eliminate all decentralization costs and coordinate capacity investment decisions the minimally sufficient price only contract that coordinates our supply chain specifies transfer prices for a small number 6 in our model of contingent scenarios our game theoretic model allows the analysis of the role of transfer prices and of the bargaining power of buyer and supplier we find that sometimes firms may be better off leaving some contract parameters unspecified ex ante and agreeing to negotiate ex post also a price focused strategy for managing subcontractors can backfire because a lower transfer price may decrease the manufacturer s profit finally as with financial options the option value of subcontracting increases as markets are more volatile or more negatively correlated

the middleman as a panacea for supply chain coordination problems abstract the prevalence of intermediaries middlemen in supply chains is often seen as a dying remnant of less efficient times despite predictions that supply chains will rapidly cut out the middleman as technological advances have eased logistics middlemen have continued to thrive in this paper we demonstrate a transaction role of middlemen that may help clarify their staying power in a model with self interested decision making by both a manufacturer and a retailer wherein incentive misalignment creates investment and production inefficiencies we show that the integrated first best outcome can be achieved with simple cost based contracts if and only if a middleman is present we further show that the approach of utilizing a middleman to fully coordinate the supply chain is robust in that it can be applied to a variety of circumstances discussed in the literature including multilateral investment effort choices multiple product providers and logistical investments made by the middleman

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

optimal joint inventory and transshipment control under uncertain capacity in this paper we address the optimal joint control of inventory and transshipment for a firm that produces in two locations and faces capacity uncertainty capacity uncertainty e g due to downtime quality problems yield etc is a common feature of many production systems but its effects have not been explored in the context of a firm that has multiple production facilities we first characterize the optimal production and transshipment policies and show that uncertain capacity leads the firm to ration the inventory that is available for transshipment to the other location and characterize the structure of this rationing policy then we characterize the optimal production policies at both locations which are defined by state dependent produce up to thresholds we also describe sensitivity of the optimal production and transshipment policies to problem parameters and in particular explain how uncertain capacity can lead to counterintuitive behavior such as produce up to limits decreasing for locations that face stochastically higher demand we finally explore through a numerical study when the optimal policy is most likely to yield significant benefits compared to simple policies

information sharing in a long term supply chain relationship the role of customer review strategy in this paper we study the practice of forecast sharing and supply chain coordination with a game theoretical model we find that in a one shot version of the game forecasts are not shared truthf

production inventory games a new class of totally balanced combinatorial optimization games in this paper we introduce a new class of cooperative games that arise from production inventory problems several agents have to cover their demand over a finite time horizon and shortages are allowed each agent has its own unit production inventory holding and backlogging cost cooperation among agents is given by sharing production processes and warehouse facilities agents in a coalition produce with the cheapest production cost and store with the cheapest inventory cost we prove that the resulting cooperative game is totally balanced and the owen set reduces to a singleton the owen point based on this type of allocation we find a population monotonic allocation scheme for this class of games finally we point out the relationship of the owen point with other well known allocation rules such as the nucleolus and the shapley value

vertical integration with endogenous contract leadership stability and fair profit allocation abstract this paper studies vertical integration in serial supply chains with a wholesale price contract we consider a business environment where the contracting leader may be endogenously changed before and after forming the integration a cooperative game is formulated to normatively analyze the stable and fair profit allocations under the grand coalition in such an environment our main result demonstrates that vertical integration is stable when all members are pessimistic in the sense that they are sure that they will not become the contracting leader if they deviate from the grand coalition we find that in this case the grand coalition s profit must be allocated more to the retailer and the members with higher costs nevertheless we also show the conditions under which the upstream manufacturer can have strong power as in traditional supply chains

capacity sharing between competitors market competition may lead to mismatch between supply and demand that is overpricing may give rise to underselling and underpricing may yield stockout capacity sharing is a common practice to

inventory games with permissible delay in payments abstract meca et al 2004 studied a class of inventory games which arise when a group of retailers who observe demand for a common item decide to cooperate and make joint orders with the eoq policy in this paper we extend their model to the situation where retailer s delay in payments is permitted by the supplier we introduce the corresponding inventory game with permissible delay in payments and prove that its core is nonempty then a core allocation rule is proposed which can be reached through population monotonic allocation scheme under this allocation rule the grand coalition is shown to be stable from a farsighted point of view

computing core allocations in cooperative games with an application to cooperative procurement abstract cooperative game theory defines several concepts for distributing outcome shares in a cooperative game with transferable utilities one of the most famous solution concepts is the core which defines a set of outcome allocations that are stable such that no coalition has an incentive to leave the grand coalition in this paper we propose a general procedure to compute a core element or to detect that no core allocation exists which is based on mathematical programming techniques the procedure proposed in this paper can be applied to a wide class of cooperative games where the characteristic function is given by the optimum objective function value of a complex optimization problem for cooperative procurement which is an example from the field of supply chain management where some literature on the core concept already exists we prove the applicability and provide computational results to demonstrate that games with 150 players can be handled

is the age 60 rule relevant in 1960 the federal aviation administration in the united states put in place the age 60 rule that required airline pilots to retire upon reaching the age of 60 years this rule has been challenged on numerous occasions but the faa has not changed the rule a logit model is used to analyse accidents and incidents for 1989 such factors as piolt training and experience aircraft characteristics and whether are considered in analysing the impact of pilot age to age 65 on accidents age is not found to be a statistically significant factor for pilots in three licence classes this study provides indirect evidence that the age 60 rule may be unwarranted

monopoly pricing of capacity usage under asymmetric information the design of monopoly pricing strategies is examined in a general framework with an unknown population distribution of consumer characteristics and downward sloping multi unit consumer demand in addition the monopolist has increasing marginal cost three pricing strategies are shown to implement the profit maximizing allocation reference point pricing multi unit competitive bidding with variable outputs and generalized priority service the analysis of pricing also is extended to include random capacity copyright 1993 by blackwell publishing ltd

a framework of economic analysis for tapered technology manufacturing alliances abstract globalization of production has altered the configuration of supply chains in many industries besides outsourcing joint ventures and strategic alliances are increasingly established to create competitive production organizations this paper addresses a case of tapered technology manufacturing alliance between a process technology firm with captive manufacturing capability and an efficient manufacturing firm in an asset heavy industry a framework of economic analysis is first developed for fusing the factors of technology licensing manufacturing efficiency risk sharing and demand uncertainty analysis methods of capacity economics are next described for participation analysis capacity allocation and contract term tradeoffs finally we demonstrate the utility of the methods by numerical examples with stylized industry data and by an analysis of alliance stability when facing potential new entrants

operations research models for coalition structure in collaborative logistics abstract given a set of players and the cost of each possible coalition the question we address is which coalitions should be formed we formulate mixed integer linear programming models for this problem considering core stability and strong equilibrium the objective function looks for minimizing the total cost allocated among the players concerned about the difficulties of managing large coalitions in practice we also study the effect of a maximum cardinality constraint per coalition we test the models in two applications one is in collaborative forest transportation and the other one in inventory of spare parts for oil operations in these situations collaboration opportunities involving significant savings exist but for several reasons it may be better to group the players in different sub coalitions rather than in the grand coalition the models we propose are thus relevant for deciding how to partition the set of players we also prove that if the strong equilibrium model is feasible its optimal cost is equal to the optimal cost of the core stability model and consequently a coalition structure that solves one problem also solves the other problem we present results that illustrate this property we also present results where the core stability problem is feasible and the strong equilibrium problem is infeasible setting an upper bound on the maximum cardinality of the coalitions allows us to study the marginal savings of enlarging the cardinality of the coalitions we find that the marginal savings of allowing one more player significantly decreases as the bound increases

optimal contributions to flexible spending accounts abstract flexible spending accounts fsas permit tax free healthcare spending fsa dollars at year end are lost given no alternative for leftover money rational consumers spend to zero optimal fsa contributions should emphasize tradeoffs between utility from pre tax medical expenditures and post tax non medical consumption

the competitive newsboy we consider a competitive version of the classical newsboy problem in which a firm must choose an inventory or production level for a perishable good with random demand and the optimal solution is a fractile of the demand distribution and investigate the impact of competition upon industry inventory a splitting rule specifies how initial industry demand is allocated among competing firms and how any excess demand is allocated among firms with remaining inventory we examine the relation between equilibrium inventory levels and the splitting rule and provide conditions under which there is a unique equilibrium our most general result is that if all excess demand is reallocated i e there is perfect substitutability then competition never leads to a decrease in industry inventory

stochastic programming for decentralized newsvendor with transshipment abstract this paper discusses a family of two stage decentralized inventory problems using a unifying framework taxonomy depicted as a multilevel graph this framework allows us to model and link different problems of competing retailers who independently procure inventory in response to uncertain demand and anticipated inventory decisions of other retailers in this family of problems in the ex post stage the retailers exercise recourse actions in response to the realized demand and competitors chosen procurement levels for example retailers could coordinate inventory transshipment to satisfy shortage with overage based on profit sharing agreements our framework provides a unifying parsimonious view using a single methodological prism for a variety of problems equally importantly as recourse options are laid out our framework clarifies and contributes a modeling connection between problems in a clear taxonomy of models this unifying perspective explicitly links work that appeared in isolation and offers future research directions

cooperation in service systems we consider a number of servers that may improve the efficiency of the system by pooling their service capacities to serve the union of the individual streams of customers this economies of scope phenomenon is due to the reduction in the steady state mean total number of customers in the system the question we pose is how the servers should split among themselves the cost of the pooled system when the individual incoming streams of customers form poisson processes and individual service times are exponential we define a transferable utility cooperative game in which the cost of a coalition is the mean number of customers or jobs in the pooled system we show that despite the characteristic function is neither monotone nor concave the game and its subgames possess nonempty cores in other words for any subset of servers there exist cost sharing allocations under which no partial subset can take advantage by breaking away and forming a separate coalition we give an explicit expression for all infinitely many nonnegative core cost allocations of this game finally we show that except for the case where all individual servers have the same cost there exist infinitely many core allocations with negative entries and we show how to construct a convex subset of the core where at least one server is being paid to join the grand coalition

inventory centralization games with price dependent demand and quantity discount consider a distribution system consisting of a set of retailers facing a single period price dependent demand of a single product by taking advantage of the risk pooling effect and the quantity volume discount provided by suppliers or third party carriers the retailers may place joint orders and keep inventory at central warehouses before demand realization and allocate inventory among themselves after demand realization to reduce their operating costs under rather general assumptions we prove that there is a stable allocation of profits among the retailers in the sense that the resulting inventory centralization game has a nonempty core we also show how to compute an allocation in the core

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

relational incentive contracts standard incentive theory models provide a rich framework for studying informational problems but assume that contracts can be perfectly enforced this paper studies the design of self enforced relational contracts i show that optimal contracts often can take a simple stationary form but that self enforcement restricts promised compensation and affects incentive provision with hidden information it may be optimal for an agent to supply the same inefficient effort regardless of cost conditions with moral hazard optimal contracts involve just two levels of compensation this is true even if performance measures are subjective in which case optimal contracts terminate following poor performance jel c73 d82 l14

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

on the benefits of pooling in production inventory systems we study inventory pooling in systems with symmetric costs where supply lead times are endogenously generated by a finite capacity production system we investigate the sensitivity of the cost advantage of inventory pooling to various system parameters including loading service levels demand and production time variability and structure of the production system the analysis reveals differences in how various parameters affect the cost reduction from pooling and suggests that these differences stem from the manner in which the parameters influence the induced correlation between lead time demands of the demand streams we compare these results with those obtained for pure inventory systems where lead times are exogenous we also compare inventory pooling with several forms of capacity pooling

optimal annual contributions to flexible spending accounts a rule of thumb abstract many employees under contribute to so called flexible spending accounts to maximize expected income after tax and medical spending contribute to your flexible spending account fsa until the probability of spending the last dollar equals one minus your marginal tax rate

sequential correlated equilibria in stopping games in many situations such as trade in stock exchanges agents have many opportunities to act within a short interval of time the agents in such situations can often coordinate their actions in advance but coordination during the game consumes too much time an equilibrium in such situations has to be sequential in order to handle mistakes made by players in this paper we present a new solution concept for infinite horizon dynamic games which is appropriate for such situations a sequential normal form correlated approximate equilibrium under additional assumptions we show that every such game admits this kind of equilibrium

stable farsighted coalitions in competitive markets in this paper we study dynamic alliance formation among agents in competitive markets we look at n agents selling substitutable products competing in a market in this setting we examine models with deterministic and stochastic demand and we use a two stage approach in stage 1 agents form alliances coalitions and in stage 2 coalitions make decisions price and inventory and compete against one another to analyze the stability of coalition structures in stage 1 we use two notions from cooperative games the largest consistent set lcs and the equilibrium process of coalition formation epcf which allow players to be farsighted thus in forming alliances players consider two key phenomena first players trade off the size of the total profit of the system versus their allocation of this total pie and second they weigh the possibility that an immediate beneficial defection can trigger further counter defections that in the end may prove to be worse than the status quo in particular one such example is that of the grand coalition which we show to be stable in the farsighted sense even though players benefit myopically by defecting from it we also provide conditions under which a situation of a few lone players competing against a large coalition is stable we examine the impact of the size of the market n the degree of competition the effect of cost parameters and the variability of the demand process on the prices inventory levels and structure of the market we discuss the possible strategic implications of our results to firms in a competitive market and for new entrants

a brownian approximation of a production inventory system with a manufacturer that subcontracts this paper considers a production inventory problem where a manufacturer fulfills stochastic stationary demand for a single product from a finished goods inventory the inventory can be replenished by two production resources in house production and a subcontractor which both have finite capacity we construct a brownian approximation of the optimal control problem assuming that the manufacturer uses a dual base stock policy to control replenishment from the two sources and that her objective is to minimize average cost a closed form expression is obtained for one optimal base stock policy and an analytical expression is derived from which the other optimal base stock can be computed numerically we show conditions under which the objective is convex in capacity and the unique globally optimal capacity can be computed numerically we thus provide a tractable approximation to the two source problem which is generally intractable we demonstrate the accuracy of this approximation for an m m 1 model we also draw managerial insight from the brownian optimal base stock results into how the optimal base stock policies control the inventory distribution and under what conditions the contingent source is used to build inventory or to resolve backorders

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

a stackelberg model of pricing of complementary goods under information asymmetry abstract we consider a duopoly market where two separate firms offer complementary goods in a leader follower type move each firm has private forecast information about the uncertain market demand and decides whether to share it with the other firm we show that information sharing would benefit the leader firm but hurt the follower firm as well as the total system if the follower firm shares information unconditionally we then devise a simple to implement information sharing scheme under which both firms and the total system are better off we also provide several interesting managerial insights and establish the robustness of the model in managing a supply chain through our analytical and simulation results

bringing the market inside the firm academics consultants and practitioners have long advocated bringing the market inside the firm for example in the 1950 s and 1960 s economists proposed that the transferpricing problem should be solved by charging market prices for internal transactions similarly in the 1980 s financial economists suggested that the capital allocation problem should be solved by charging the external cost of capital for internal investments and wave after wave of organizational restructuring has advocated radical decentralization empowerment intrapreneurship and the like in short making employees feel like owners proponents of making transactions within firms more market like often seem to ignore the factors that brought these transactions inside firms in the first place but bengt holmstrom and paul milgrom 1991 1994 holmstrom and jean tirole 1991 and holmstrom 1999 hereafter referred to collectively as hmt remind us that in some cases integration is efficient precisely because it eliminates market incentives in such cases bringing the market inside the firm would clearly be undesirable in this paper we show that bringing the market inside the firm is often not feasible even if it would be desirable more precisely if some aspects of the market transaction are noncontractible as we define below then it is impossible to replicate spot market payoffs inside a firm this result would be trivial if the firm s only instruments were court enforceable contracts it is impossible by definition for such contracts to replicate payoffs that were noncontractible in a spot market our contribution is to show that this result also applies to relational contracts i e self enforcing agreements in repeated games to establish this result we follow sanford grossman and oliver hart 1986 hart and john moore 1990 and hart 1995 hereafter referred to collectively as ghm in using asset ownership to determine whether a particular transaction is inside a firm and hmt in adding court enforceable contracts to asset ownership models we also draw on our own work baker et al 2001 to model relational contracts the resulting model is the first we know of that simultaneously analyzes asset ownership courtenforceable contracts and relational contracts

transshipment of inventories among retailers myopic vs farsighted stability the author considers a model of a decentralized distribution system consisting of n retailers selling an identical product retailers face a stochastic demand and must order their initial inventory before this demand is realized after demand realization retailers decide how much of their unsold inventory or unsatisfied demand they want to share with other retailers this is followed by a transshipment of leftover inventories and distribution of the additional profit generated through inventory sharing the author addresses the following issue suppose that the retailers distribute the profit from inventory sharing according to an allocation rule that induces retailers to share their residuals in a way that maximizes the additional profit such as the shapley value but may not belong to the core is it likely that in this framework all retailers will jointly share their residuals and not form subcoalitions previous research has looked at this problem from a myopic viewpoint and concluded that the grand coalition is not stable unlike the prior work the author looks at stability in a farsighted sense that is retailers do not consider only their immediate payoffs but are also concerned with reactions of other retailers to their actions in a symmetric setting with identical additional unit revenues from transshipments generated by all retailers farsighted retailers always maximize their allocations by not defecting from the grand coalition the author also provides conditions when the same is true for nonidentical additional unit revenues

gender firm size industry and estimates of the value of life two national probability samples are used to investigate four empirical questions associated with estimating the value of life using coefficients from wage regressions the four questions pertain to whether wage regression coefficients on fatality rate variables are sensitive to 1 including or excluding women from the sample 2 definitions of the fatality rate which include estimates of either male only or female only deaths 3 removing the influence of firm size from the fatality rate or the wage rate 4 respondents inaccuracies in reporting their three digit industry problems associated with 3 and 4 are found to be minimal problems associated with 1 and 2 also appear to be small if the goal is to estimate the value of life for men

collaborative replenishment in the presence of intermediaries in complex supply chains downstream buyers would often replenish individually from intermediaries instead of directly dealing with original manufacturers although collaborative replenishment from intermediaries might generate benefits significant cost reductions could be achieved when direct replenishments from manufacturers are considered this paper constructs a general model to study collaborative replenishment in multi product chains with alternative sources of supply i e manufacturers and intermediaries a collaborative organization determines the optimal choices of replenishment sources on behalf of its members to minimize collective costs we introduce a class of cooperative games associated with these situations and give sufficient conditions for their concavity we investigate the choice of allocation rule and its effect on supply chain efficiency when buyers strategically participate in the collaborative organization we prove that the shapley value coordinates the supply chain i e it makes complete participation the best strategy for buyers even under asymmetric information this setting is compared with an alternative structure where buyers can only collaborate in source specific replenishment organizations that purchase all requested products either from intermediaries or manufacturers although there are always participation strategies that result in minimum collective cost it is impossible to find allocation rules for source specific replenishment organizations that always motivate the buyers to choose such strategies

accuracy of response in labor market surveys evidence and implications this paper examines the extent of response errors in labor market survey data and explores the implications of such errors for economic analysis explicitly examined are responses to questions on industry occupation union status hours worked and wages analyses are based on two sources 1 a special supplement to the january 1977 current population survey that obtained data from workers and their employers and 2 an exact match of workers and their employers interviewed in the employment opportunity pilot project survey the dual nature of these surveys provides a basis for analyzing the effect of response error on a variety of economic analyses including the trade off between wages and risk the wage impact of unionism and the sensitivity of wage determination models to alternative responses to earnings questions

a comparison of milestone based and buyout options contracts for coordinating r d partnerships we analyze optimal contractual arrangements in a bilateral research and development r d partnership between a risk averse provider that conducts early stage research followed by a regulatory verification stage and a risk neutral client that performs late stage development activities including production distribution and marketing the problem is formulated as a sequential investment game with the client as the principal where the investments are observable but not verifiable the model captures the inherent incentive alignment problems of double sided moral hazard risk aversion and holdup we compare the efficacy of milestone based options contracts and buyout options contracts from the client s perspective and identify conditions under which they attain the first best outcome for the client we find that milestone based options contracts always attain the first best outcome for the client when the provider has some bargaining power in renegotiation and identify their applicability to different r

relational contracts and the theory of the firm relational contracts informal agreements sustained by the value of future relationships are prevalent within and between firms we develop repeated game models showing why and how relational contracts within firms vertical integration differ from those between nonintegration we show that integration affects the parties temptations to renege on a given relational contract and hence affects the best relational contract the parties can sustain in this sense the integration decision can be an instrument in the service of the parties relationship our approach also has implications for joint ventures alliances and networks and for the role of management within and between firms

strategic commitments for an optimal capacity decision under asymmetric forecast information we study the important problem of how to assure credible forecast information sharing between a supplier and a manufacturer the supplier is responsible for acquiring the necessary capacity before receiving an order from the manufacturer who possesses private forecast information for her end product we address how different contracts affect the supplier s capacity decision and hence the profitability of the supplier and the manufacturer we fully develop two contracts and provide explicit formulae to enable credible forecast information sharing the first is a nonlinear capacity reservation contract under which the manufacturer agrees to pay a fee to reserve capacity the second is an advance purchase contract under which the manufacturer is induced to place a firm order before the supplier secures the component capacity used to build the end product these contracts serve a strategic role in information sharing the capacity reservation contract enables the supplier to detect the manufacturer s private forecast information while the advance purchase contract enables the manufacturer to signal her forecast information we show that channel coordination is possible even under asymmetric forecast information by combining the advance purchase contract with an appropriate payback agreement through our structural and numerical results we also show that the degree of forecast information asymmetry and the risk adjusted profit margin are two important drivers that determine supply chain efficiency and which contract to adopt

repeated newsvendor game with transshipments under dual allocations abstract we study a repeated newsvendor game with transshipments in every period n retailers face a stochastic demand for an identical product and independently place their inventory orders before demand realization after observing the actual demand each retailer decides how much of her leftover inventory or unsatisfied demand she wants to share with the other retailers residual inventories are then transshipped in order to meet residual demands and dual allocations are used to distribute residual profit unsold inventories are salvaged at the end of the period while in a single shot game retailers in an equilibrium withhold their residuals we show that it is a subgame perfect nash equilibrium for the retailers to share all of the residuals when the discount factor is large enough and the game is repeated infinitely many times we also study asymptotic behavior of the retailers order quantities and discount factors when n is large finally we provide conditions under which a system optimal solution can be achieved in a game with n retailers and develop a contract for achieving a system optimal outcome when these conditions are not satisfied

the cost allocation problem for the first order interaction joint replenishment model we consider an infinite horizon deterministic joint replenishment problem with first order interaction under this model the setup transportation reorder cost associated with a group of retailers placing an order at the same time equals some group independent major setup cost plus retailer dependent minor setup costs in addition each retailer is associated with a retailer dependent holding cost rate the structure of optimal replenishment policies is not known thus research has focused on optimal power of two pot policies following this convention we consider the cost allocation problem of an optimal pot policy among the various retailers for this sake we define a characteristic function that assigns to any subset of retailers the average time total cost of an optimal pot policy for replenishing the retailers in the subset under the assumption that these are the only existing retailers we show that the resulting transferable utility cooperative game with this characteristic function is concave in particular it is a totally balanced game namely this game and any of its subgames have nonempty core sets finally we give an example for a core allocation and prove that there are infinitely many core allocations

large newsvendor games we consider a game called newsvendor game where several retailers who face a random demand can pool their resources and build a centralized inventory that stocks a single item on their behalf profits have to be allocated in a way that is advantageous to all the retailers a game in characteristic form is obtained by assigning to each coalition its optimal expected profit we consider newsvendor games with possibly an infinite number of newsvendors we prove in great generality results about balancedness of the game and we show that in a game with a continuum of players under a nonatomic condition on the demand the core is a singleton for a particular class of demands we show how the core shrinks to a singleton when the number of players increases

effective interim collaboration how firms minimize transaction costs and maximise transaction value this study of automotive transaction relationships in the u s a and japan offers abta which indicate that transaction costs do not necessarily increase with an increase in reiation specijk investments we empirically examine the conditions under which transactors can simultaneously achieve the twin benejits of high asset specificity and low transaction costs this is possible because the dtfferent safeguards which can be employed to control opportunism have different set up costs and result in different transaction costs over dl erent time horizons we examine in detail the ractices of javanese firms which result in effective inteq n collaboration 1997 by john wiley sons ltd

sustaining long term supply chain partnerships using price only contracts abstract in this paper we study how an informal long term relationship between a manufacturer and a retailer performs in turbulent market environments characterized by uncertain demand we show that the long term partnership based on repeated interaction is sustainable under price only contracts when the supply chain partners are sufficiently patient that is the channel can be coordinated over a long time horizon when the factor whereby the members discount the future value of this trusting relationship is sufficiently high second above the minimum discount factor a range of wholesale prices exists that can sustain the long term partnership and there are different possible profit divisions between the two players third when the market is turbulent i e either the expected demand or the demand variance changes from period to period according to a probabilistic law it is typically less possible to sustain the long term partnership in a booming market or in a market with low demand variability finally obtaining more information about future market fluctuation may not help the supply chain to sustain the long term partnership due to partners strategic considerations with the availability of the market signal total supply chain profits increase but the retailer may even be worse off

manufacturer s return policies and retail competition manufacturers returns policies are a common feature in the distribution of many products the obvious rationale for returns policies is insurance practitioners not surprisingly have a different perspective and view returns as a cost of doing business in this paper we study the strategic effect of returns policies on retail competition and highlight its profitability implications for a manufacturer the setting for our research is the distribution of products with uncertain demand limited shelf lives and retail competition our objective is to provide a better understanding of when manufacturers should adopt returns policies the insights are obtained with a model based on the economics of strategy and decision making under uncertainty we show that when retailing is competitive and there is no uncertainty in demand a returns policy subtly induces retailers to compete more intensely the provision of a returns policy reduces retail prices without affecting wholesale prices thereby reducing retailer margins and improving manufacturer profitability the intuition is that with a returns policy cournot like levels of retail stocks cannot be sustained each retailer will order stocks so that it will not be constrained by stocks and so intensifying retail competition when however demand is uncertain and there is a single retailer a returns policy encourages the retailer to over stock and so decreases upstream manufacturer profits while the provision of a returns policy leads to lower retail margins the optimality of returns policy depends on the overall uncertainty and marginal cost a returns policy reduces the dispersion in retail prices between the high and low states of demand and the range of retail prices in the returns case is contained within the range of retail prices for the no returns case in the general setting when there are competing retailers and demand is uncertain there is a trade off for the manufacturer between the benefits more intense retail competition and the costs excessive stocking of a returns policy we find that a manufacturer should accept returns when the marginal production cost is sufficiently low and demand uncertainty is not too great to validate the results of our theory we conduct an empirical test with data from a major u s retailer the tests confirm our prediction that a returns policy intensifies retail competition and reduces retailer margins our theory and empirical test should interest practitioners and researchers in distribution especially those concerned with managing retail competition

the effect of uncertain educational requirements on education and wages this paper examines the effects of uncertain educational requirements the level of education required to enter an occupation varies with a number of factors workers may be uncertain as to their specific job when selecting an occupation thus they are also uncertain as to how much education they will need we find that occupations with more uncertainty pay males compensating wages however females do not receive compensating wages we also find a negative relationship between uncertain educational requirements and completed schooling for both men and women

implications of breach remedy and renegotiation design for innovation and capacity amanufacturer writes supply contracts with n buyers then the buyers invest in innovation and the manufacturer builds capacity finally demand is realized and the firms renegotiate the supply contracts to achieve an efficient allocation of capacity among the buyers the court remedy for breach of contract specific performance versus expectation damages affects how the firms share the gain from renegotiation and hence how the firms make investments ex ante the firms may also engage in renegotiation design inserting simple clauses into the supply contract to shape the outcome of renegotiation for example when a buyer grants a financial hostage to the manufacturer or is charged a per diem penalty for delay in bargaining the manufacturer captures the gain from renegotiation tradable options which grant buyers the right to trade capacity without intervention from the manufacturer return the gain from renegotiation to the buyers this paper proves that under surprisingly general conditions the firms can coordinate their investments with the simplest of supply contracts fixed quantity contracts this may require renegotiation design and certainly requires that the firms understand the breach remedy and set their contract parameters accordingly

shipment consolidation who pays for it and how much this paper examines the subject of cost allocation in a multiple product inventory system allowing for consolidation of shipments if we order multiple items using an economic order quantity eoq policy and consolidate shipments part of the ordering cost is shared and part is specific to each item we want to find the consolidation choice with optimal total cost and divide the cost fairly among the individual items such a fair division is central to a costing system in which no group of items subsidizes the others there are no free riders we use a cooperative inventory game to determine when this can be done this game is usually not concave so we want to know what consolidation combinations determine when this cost can be fairly divided using the core of the game we prove that consolidation of all the items is cheaper exactly if there are fair cost allocations core of the game is not empty which happens when the portion of the ordering cost common to all items is not too small we further show how sensitive the nonempty core result is to adjustments in the cost parameters and show how to determine a threshold value for the shared ordering cost which assures the existence of a fair cost allocation

inventory competition under dynamic consumer choice we analyze a model of inventory competition among n firms that provide competing substitutable goods each firm chooses initial inventory levels for their good in a single period newsboy like inventory model customers choose dynamically based on current availability so the inventory levels at one firm affect the demand of all competingfirms this creates a strategic interaction amongthe firms inventory decisions our work extends earlier work on variations of this problem by karjalainen 1992 lippman and mccardle 1997 and parlar 1988 specifically we model demand in a more realistic way as a stochastic sequence of heterogeneous consumers who choose dynamically from amongthe available goods or choose not to purchase based on a utility maximization criterion we also use a sample path analysis so minimal assumptions are imposed on this demand process we characterize the nash equilibrium of the resulting stocking game and prove it is unique in the symmetric case we show there is a bias toward overstocking caused by competition specifically reducing the quantity stocked at any equilibrium of the game increases total system profits and at any joint optimal set of stocking levels each firm has an individual incentive to increase its own stock for the symmetric case we show that as the number of competing firms increases the overstockingbecomes so severe that total system and individual firm profits approach zero finally we propose a stochastic gradient algorithm for computing equilibria and provide several numerical examples

measuring imputed cost in the semiconductor equipment supply chain we consider the order fulfillment process of a supplier producing a customized capital good such as production equipment commercial aircraft medical devices or defense systems as is common in these industries prior to receiving a firm purchase order from the customer the supplier receives a series of shared forecasts which are called soft orders facing a stochastic internal manufacturing lead time the supplier must decide at what time to begin the fulfillment of the order this decision requires a trade off between starting too early leading to potential holding or cancellation costs and starting too late leading to potential delay costs we collect detailed data of shared forecasts actual purchase orders production lead times and delivery dates for a supplier buyer dyad in the semiconductor equipment supply chain under the assumption that the supplier acts rationally optimally balancing the cancellation holding and delay costs we are able to estimate the corresponding imputed cost parameters based on the observed data our estimation results reveal that the supplier perceives the cost of cancellation to be about two times higher and the holding costs to be about three times higher than the delay cost in other words the supplier is very conservative when commencing the order fulfillment which undermines the effectiveness of the overall forecast sharing mechanism

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

the value of flexibility in make to order systems the effect of demand correlation we consider a manufacturer of mass customized modular products who orders components under demand uncertainty and sets prices produces to order and trades excess components in a secondary market after this uncertainty is resolved the sequence of events reflects in a parsimonious fashion the considerable reduction in demand uncertainty between the procurement stage and the selling season typical of industries with long supply lead times and short product life cycles we prove that in contrast to conventional wisdom the value of production flexibility and expected profit increase with demand correlation if and only if commonality between the corresponding products does not exceed a threshold we also prove that the value of flexibility and expected profit may each increase or decrease with demand variability depending on demand correlations and component commonalities across the entire product line finally we prove that when demand shocks are independent the optimal product prices are positively correlated if and only if the degree of commonality between the corresponding products exceeds a threshold

posted pricing vs bargaining in sequential selling process we study the role of bargaining in a firm s sequential selling process the seller firm under consideration sequentially sells a fixed amount of stock to a random arrival stream of potential buyers who are heterogeneous in product valuation based on the stock level and the time to the end of the selling season the seller may dynamically choose either to post a take it or leave it price or to engage in bargaining with an arriving buyer we introduce a stochastic order called the scaled pricing order for the buyer s valuation distribution the scaled pricing order measures the average portion of trade surplus that the seller can obtain by posting a price for distributions with increasing length biased hazard rate checking the property of increasing decreasing scaled pricing order boils down to verifying the concavity convexity of the mills ratio we fully characterize the family of distributions that are invariant in the scaled pricing order which includes uniform and exponential distributions

setting the right incentives for global planning and operations we study incentive issues seen in a firm performing global planning and manufacturing and local demand management the stochastic demands in local markets are best observed by the regional business units and the firm relies on the business units forecasts for planning of global manufacturing operations we propose a class of performance evaluation schemes that induce the business units to reveal their private demand information truthfully by turning the business units demand revelation game into a potential game with truth telling being a potential maximizer an appealing refinement of nash equilibrium moreover these cooperative performance evaluation schemes satisfy several essential fairness notions after analyzing the characteristics of several performance evaluation schemes in this class we extend our analysis to include the impact of effort on demand

dynamic business share allocation in a supply chain with competing suppliers this paper studies a repeated game between a manufacturer and two competing suppliers with imperfect monitoring we present a principal agent model for managing long term supplier relationships using a unique form of measurement and incentive scheme we measure a supplier s overall performance with a rating equivalent to its continuation utility the expected total discounted utility of its future payoffs and incentivize supplier effort with larger allocations of future business we obtain the vector of the two suppliers ratings as the state of a markov decision process and we solve an infinite horizon contracting problem in which the manufacturer allocates business volume between the two suppliers and updates their ratings dynamically based on their current ratings and the current performance outcome our contributions are both theoretical and managerial we propose a repeated principal agent model with a novel incentive scheme to tackle a common but challenging incentive problem in a multiperiod s