strategic capacity rationing to induce early purchases dynamic pricing offers the potential to increase revenues at the same time it creates an incentive for customers to strategize over the timing of their purchases a firm should ideally account for this behavior when making its pricing and stocking decisions in particular we investigate whether it is optimal for a firm to create rationing risk by deliberately understocking products then the resulting threat of shortages creates an incentive for customers to purchase early at higher prices but when does such a strategy make sense if it is profitable to create shortages what is the optimal amount of rationing risk to create we develop a stylized model to study this problem in our model customers have heterogeneous valuations for the firm s product and face declining prices over two periods customers are assumed to have identical risk preferences and know the price path and fill rate in each period via its capacity choice the firm is able to control the fill rate and hence the rationing risk faced by customers customers behave strategically and weigh the payoff of immediate purchases against the expected payoff of delaying their purchases we analyze the capacity choice that maximizes the firm s profits first we consider a monopoly market and characterize conditions under which rationing is optimal we examine how the optimal amount of rationing is affected by the magnitude of price changes over time and the degree of risk aversion among customers we then analyze an oligopoly version of the model and show that competition reduces the firms ability to profit from rationing indeed there exists a critical number of firms beyond which a rationing equilibrium cannot be supported

the value of fast fashion quick response enhanced design and strategic consumer behavior a fast fashion system combines quick response production capabilities with enhanced product design capabilities to both design hot products that capture the latest consumer trends and exploit minimal production lead times to match supply with uncertain demand we develop a model of such a system and compare its performance to three alternative systems quick response only systems enhanced design only systems and traditional systems which lack both enhanced design and quick response capabilities in particular we focus on the impact of each of the four systems on strategic or forward looking consumer purchasing behavior i e the intentional delay in purchasing an item at the full price to obtain it during an end of season clearance we find that enhanced design helps to mitigate strategic behavior by offering consumers a product they value more making them less willing to risk waiting for a clearance sale and possibly experiencing a stockout quick response mitigates strategic behavior through a different mechanism by better matching supply to demand it reduces the chance of a clearance sale most importantly we find that although it is possible for quick response and enhanced design to be either complements or substitutes the complementarity effect tends to dominate hence when both quick response and enhanced design are combined in a fast fashion system the firm typically enjoys a greater incremental increase in profit than the sum of the increases resulting from employing either system in isolation furthermore complementarity is strongest when customers are very strategic we conclude that fast fashion systems can be of significant value particularly when consumers exhibit strategic behavior this paper was accepted by yossi aviv operations management

behavioral anomalies in consumer wait or buy decisions and their implications for markdown management the decision to buy an item at a regular price or wait for a possible markdown involves a multidimensional trade off between the value of the item the delay in getting it the likelihood of getting it and the magnitude of the price discount such trade offs are prone to behavioral anomalies by which human decision makers deviate from the discounted expected utility model we build an axiomatic preference model that accounts for three well known anomalies and produces a parsimonious generalization of discounted expected utility we then plug this behavioral model into a stackelberg nash game between a firm that decides the price discount and a continuum of consumers who decide to wait or buy anticipating other consumers decisions and the resultant likelihood of product availability we solve the markdown management problem and contrast the results of our model with those under discounted expected utility we analytically show that accounting for the behavioral anomalies can result in larger markdowns a

dynamic pricing strategies with reference effects we consider the dynamic pricing problem of a monopolist firm in a market with repeated interactions where demand is sensitive to the firm s pricing history consumers have memory and are prone to human decision making biases and cognitive limitations as the firm manipulates prices consumers form a reference price that adjusts as an anchoring standard based on price perceptions purchase decisions are made by assessing prices as discounts or surcharges relative to the reference price in the spirit of prospect theory we prove that optimal pricing policies induce a perception of monotonic prices whereby consumers always perceive a discount respectively surcharge relative to their expectations the effect is that of a skimming or penetration strategy the firm s optimal pricing path is monotonic on the long run but not necessarily at the introductory stage if consumers are loss averse we show that optimal prices converge to a constant steady state price characterized by a simple implicit equation otherwise the optimal policy cycles the range of steady states is wider the more loss averse consumers are steady state prices decrease with the strength of the reference effect and with customers memory all else equal offering lower prices to frequent customers may be suboptimal however if these are less sensitive to price changes than occasional buyers if managers ignore such long term implications of their pricing strategy the model indicates that they will systematically price too low and lose revenue our results hold under very general reference dependent demand models

do firms get the financing they want measuring credit rationing experienced by small businesses in the u s this paper measures the extent to which small businesses in the united states in the late 1980s were able to access the external credit finance they desired we argue that a comprehensive definition of credit rationing must account for both a creditworthy firms that apply for and are denied financing and b creditworthy firms that decide not to apply for desired external financing given expectations about how long it may take to obtain financing and the evolution of investment opportunities

are small innovators credit rationed drawing upon a sample of 256 small firms who applied for bank loans the current paper is concerned with the extent to which innovativeness is associated with a lower level of loan application success the paper records the proportion of loan successfully applied for and estimates a series of tobit models utilising a number of proxy measures for innovation in terms of inputs outputs and commercial significance to the firm and incorporating standard controls in general the models suggest as anticipated that the most innovative firms are less successful in loan markets than their less innovative peers though there is some variation by proxy moreover there is tentative evidence that a little innovation may be a good thing

dynamic pricing in the presence of strategic consumers and oligopolistic competition we present a dynamic pricing model for oligopolistic firms selling differentiated perishable goods to multiple finite segments of strategic consumers who are aware that pricing is dynamic and may time their purchases accordingly this model encompasses strategic behavior by both firms and consumers in a unified stochastic dynamic game in which each firm s objective is to maximize its total expected revenues and each consumer responds according to a shopping intensity allocation consumer choice model we prove the existence of a unique subgame perfect equilibrium provide equilibrium optimality conditions and prove monotonicity results for special cases the model provides insights about equilibrium price dynamics under different levels of competition asymmetry between firms and multiple market segments with varying properties we demonstrate that strategic behavior by consumers can have serious impacts on revenues if firms ignore that behavior in their dynamic pricing policies moreover ideal equilibrium responses to consumer strategic behavior can recover only a portion of the lost revenues a key conclusion is that firms may benefit more from limiting the information available to consumers than from allowing full information and responding to the resulting strategic behavior in an optimal fashion

multiattribute loss aversion and reference dependence evidence from the performing arts industry we study the prevalence of multiattribute loss aversion and reference effects in a revenue management setting based on data of individual level purchases over a series of concert performances the reference dependence that drives consumer choice is not only based on the price but also on observed sales as a fraction of the seating capacity during their past visits we find that consumers suffer from loss aversion on both prices and seats sold consumers incur significant utility loss when prices are above their references or when the actual seat sales are lower than their references we suggest pricing policies that can address consumer decisions driven by such reference dependence and loss aversion this paper was accepted by vishal gaur operations management

intertemporal price discrimination structure and computation of optimal policies we study a firm s optimal pricing policy under commitment the firm s objective is to maximize its long term average revenue given a steady arrival of strategic customers in particular customers arrive over time are strategic in timing their purchases and are heterogeneous along two dimensions their valuation for the firm s product and their willingness to wait before purchasing or leaving the customers patience and valuation may be correlated in an arbitrary fashion for this general formulation we prove that the firm may restrict attention to cyclic pricing policies which have length at most twice the maximum willingness to wait of the customer population to efficiently compute optimal policies we develop a dynamic programming approach that uses a novel state space that is general capable of handling arbitrary problem primitives and that generalizes to finite horizon problems with nonstationary parameters we analyze the class of monotone pricing policies and establish their suboptimality in general optimal policies are in a typical scenario characterized by nested sales where the firm offers partial discounts throughout each cycle offers a significant discount halfway through the cycle and holds its largest discount at the end of the cycle we further establish a form of equivalence between the problem of pricing for a stream of heterogeneous strategic customers and pricing for a pool of heterogeneous customers who may stockpile units of the product this paper was accepted by yossi aviv operations management

dynamic pricing when consumers are strategic analysis of posted and contingent pricing schemes abstract we study dynamic pricing policies for a monopolist selling perishable products over a finite time horizon to strategic buyers buyers are strategic in the sense that they anticipate the firm s price policies it is expensive and administratively difficult for most brick and mortar retailers to change prices placing limits on the number of price changes and the types of pricing policies they can adopt the simplest policy is to commit to a set of price changes a more complex alternative is to let the price depend on sales history we investigate two pricing schemes that we call posted and contingent pricing using the posted pricing scheme the firm announces a set of prices at the beginning of the horizon in the contingent pricing scheme price evolution depends upon demand realization our focus is on the posted pricing scheme because of its ease of implementation counter to intuition we find that neither a posted pricing scheme nor a contingent pricing scheme is dominant and the difference in expected revenues of these two schemes is small limiting the number of price changes will result in a decrease in expected revenues we show that a multi unit auction with a reservation price provides an upper bound for expected revenues for both pricing schemes numerical examples suggest that a posted pricing scheme with two or three price changes is enough to achieve revenues that are close to the upper bound dynamic pricing is only useful when strategic buyers perceive scarcity we study the impact of scarcity and derive the optimal stocking levels for large markets finally we investigate whether or not it is optimal for the seller to conceal inventory or sales information from buyers a firm benefits if it does not reveal the number of units it has available for sale at the beginning of the season or subsequently withholds information about the number of units sold

whether to attack a terrorist s resource stock today or tomorrow reprinted from games and economic behavior 64 2 kjell hausken whether to attack a terrorist s resource stock today or tomorrow pages no 548 564 copyright 2008 with permission from elsevier

deterrence preemption and panic a common enemy problem of terrorism we develop a game theoretic analysis of terrorism that examines the interaction between a terrorist organization and multiple target countries and considers both pre emption and deterrence as counter terrorist policies the damage from terror includes not only the material cost of fatality injury and loss of property but also the resultant fear the fear effect leads to different kinds of equilibria and implications for counter terrorism policies in particular the model identifies conditions under which greater pre emption may be the rational response to an increase in terrorism i e it analyzes the merit of the dictum offense is the best defense further it examines the characteristics of cooperative behavior among target countries in dealing with the threat of terrorism

a strategic analysis of the war against transnational terrorism abstract we study a two stage game in which a transnational terrorist organization interacts with an arbitrary number of countries that may differ in their political or economic power their military effectiveness the benefit from cooperating against terrorism and the value they assign to damage only a subset of countries that emerges endogenously takes proactive measures to fight the terrorist while all countries incur defensive expenditures to protect their soil we characterize analytically the pure strategy subgame perfect equilibrium of the game and show how the equilibrium strategies depend on the key model parameters we provide an algorithm to find the endogenous set of cooperating countries based on their benefit from cooperation and their political economic power

high price or low price an experimental study on a markdown pricing policy abstract this study examines whether strategic customers behavioral patterns remain consistent in different pricing scenarios under a markdown pricing policy these customers decision patterns have been widely discussed because they significantly influence the expected monetary output contrary to rational assumptions the behavioral research literature indicates that customers behavioral biases manifest in their reference dependency risk and loss attitudes and fill rate misperceptions however the relationship between behavioral biases and various pricing scenarios has not been carefully examined accordingly we conducted laboratory experiments to observe customers behavioral performance in a series of pricing scenarios to provide pricing suggestions for sellers our experimental results demonstrate that behavioral factors reflecting risk and loss attitudes as well as reference dependency can clearly describe customers behavioral biases meanwhile our estimation shows that the degrees of risk and loss attitude are not constant but depend on price settings the lower the full price in the initial period the higher the degrees of aversion to both risk and loss given such behavioral patterns we suggest that sellers should set their full prices lower than the normative value when the fill rate in period two is low and set them higher than the normative value when the fill rate in period two is high

the interplay between preemptive and defensive counterterrorism measures a two stage game a two stage game depiction of counterterrorism is presented emphasizing the interaction between preemptive and defensive measures taken by two commonly targeted countries the preemptor is apt to be the high cost defender with the greater foreign interests a prime target country may also assume the preemptor role the analysis identifies key factors cost comparisons foreign interests targeting risks and domestic terrorism losses that determine counterterrorism allocations market failures associated with preemptive and defensive measures may be jointly ameliorated by a disadvantaged defender nevertheless the subgame perfect equilibrium will still be suboptimal since externalities are not fully internalized

revenue management under a general discrete choice model of consumer behavior customer choice behavior such as buy up and buy down is an important phenomenon in a wide range of revenue management contexts yet most revenue management methodologies ignore this phenomenon or at best approximate it in a heuristic way in this paper we provide an exact and quite general analysis of this problem specifically we analyze a single leg reserve management problem in which the buyers choice behavior is modeled explicitly the choice model is very general simply specifying the probability of purchase for each fare product as a function of the set of fare products offered the control problem is to decide which subset of fare products to offer at each point in time we show that the optimal policy for this problem has a quite simple form namely it consists of identifying an ordered family of efficient subsets s 1 s m and at each point in time opening one of these sets s k where the optimal index k is increasing in the remaining capacity x and decreasing in the remaining time that is the more capacity or less time available the further the optimal set is along this sequence we also show that the optimal policy is a nested allocation policy if and only if the sequence of efficient sets is nested that is s 1 s 2 s m moreover we give a characterization of when nesting by fare order is optimal we also develop an estimation procedure for this setting based on the expectation maximization em method that jointly estimates arrival rates and choice model parameters when no purchase outcomes are unobservable numerical results are given to illustrate both the model and estimation procedure

terrorism and the world economy abstract it has been argued that terrorism should not have a large effect on economic activity because terrorist attacks destroy only a small fraction of the stock of capital of a country see e g becker g murphy k 2001 prosperity will rise out of the ashes wall street journal october 29 2001 in contrast empirical estimates of the consequences of terrorism typically suggest large effects on economic outcomes see e g abadie a gardeazabal j 2003 the economic cost of conflict a case study of the basque country american economic review 93 113 132 the main theme of this article is that mobility of productive capital in an open economy may account for much of the difference between the direct and the equilibrium impact of terrorism we use a simple economic model to show that terrorism may have a large impact on the allocation of productive capital across countries even if it represents a small fraction of the overall economic risk the model emphasizes that in addition to increasing uncertainty terrorism reduces the expected return to investment as a result changes in the intensity of terrorism may cause large movements of capital across countries if the world economy is sufficiently open so international investors are able to diversify other types of country risks using a unique data set on terrorism and other country risks we find that in accordance with the predictions of the model higher levels of terrorist risks are associated with lower levels of net foreign direct investment positions even after controlling for other types of country risks on average a standard deviation increase in the terrorist risk is associated with a fall in the net foreign direct investment position of about 5 of gdp the magnitude of the estimated effect is large which suggests that the open economy channel impact of terrorism may be substantial

strategic customer behavior facing possible stockout an experimental study abstract this paper studies strategic customer behavior in a monopolistic seller system given the stock quantity and the selling prices a customer chooses either to buy at the full price to certainly obtain a product or to wait for a discount with the risk of stockout we model the behavior of strategic customers as a customer game it is shown that the customer game may have multiple nash equilibria specifically in the condition of weak incentive compatibility the trembling hand perfect equilibrium is all wait which is inconsistent with the all buy assumption in the literature we conduct laboratory experiments to investigate behavior of strategic customers the results show that customers behaviors exhibit a deviation from nash equilibria using a framework of quantal response equilibrium we develop behavioral models to effectively characterize the behavior of strategic customers

the provision of finance to innovation a survey conducted among italian technology based small firms financial constraints to the development of innovation are often considered one of the main impediments to high technology firms seeking to expand and grow in particular this is the case of small and medium size high tech firms in the u s and the u k a variety of sources of finance are available to the start ups of innovative firms in the other european countries and particularly in italy these means are still uncommon so that the development of technology is often prevented this paper based on an empirical analysis on a survey of 46 small high tech italian firms aims at exploring the problems experienced by small businesses in gaining access to debt and equity finance the results highlight that traditional financial sources are inadequate to finance innovative projects the questioned firms rely mainly on personal finance and secondly on short term bank debt they are truly involved in maintaining control over the firm activities and are willing to issue outside equity only if the new investors also provide non financial competencies among the 46 interviewed firms only 10 are willing to be listed in the future on small firms stock markets

are business startups debt rationed using a large random sample of u k start ups and a rich data set the paper demonstrates that human capital is the true determinant of survival and that the correlation between financial capital and survival is spurious provision of finance is demand driven with banks supplying funds elastically and business requests governing take up firms self select for funds on the basis of the human capital endowments of the proprietors with better businesses more likely to borrow a reason why others have seemingly identified start up debt gaps may be the failure to test a sufficiently rich empirical model copyright 1996 by royal economic society

markdown or everyday low price the role of behavioral motives we study a seller s optimal pricing and inventory strategies when behavioral nonpecuniary motives affect consumers purchase decisions in particular the seller chooses between two pricing strategies markdown or everyday low price and determines the optimal prices and inventory level two salient behavioral motives that impact consumers purchase decisions and the seller s optimal strategies are anticipated regret and misperception of product availability regret arises when a consumer initially chooses to wait but encounters stockout later or when the consumer buys the product at the high price but realizes that the product is still available at the markdown price in addition consumers often perceive the product s future availability to be different than its actual availability we determine and quantify that both regret and availability misperception have significant operational and profit implications for the seller for example ignoring these behavioral factors can result in up to 10 profit

global terrorism deterrence versus pre emption this paper analyses two anti terrorism policies when a targeted nation s people and property are in jeopardy at home and abroad a country s deterrence decision involves both external benefits and costs as the terrorist threat is deflected while its preemption decision typically gives external benefits when the threat is reduced for all potential targets with damages limited to home interests a country will overdeter while for globalized terror a country will underdeter pre emption is usually undersupplied leader follower behaviour is apt to lessen inefficiency for deterrence but worsen inefficiency for pre emption compared with simultaneous choice equilibrium allocations targeted nations can never achieve the proper counterterrorism policy through leadership ce memoire analyse deux politiques anti terrorisme quand la population et la propriete des nations visees sont en danger tant au pays qu a l etranger la decision de dissuasion d un pays entraine des avantages et des couts externes a proportion que la menace terroriste est evitee alors que la decision de preemption produit typiquement des avantages externes quand la menace est reduite pour toutes les cibles potentielles dans le cas de dommages limites aux cibles dans le pays un pays va etre portea sur dissuader alors que dans le cas de terreur globalisee un pays va etre portea sous dissuader la preemption est generalement sous offerte le comportement leader suiveur est susceptible de reduire l inefficacite de la dissuasion mais d empirer l inefficacite de la preemption par rapport a ce qui se passe quand les choix sont simultanes les nations visees ne peuvent jamais en arriver a la politique d anti terrorisme appropriee par la voie du leadership

growing firms and the credit constraint restricted access to finance either debt or equity or both is potentially a significant constraint on the growth of small businesses financing problems arise primarily as a consequence of information asymmetries the adverse effects of these may in part be counteracted by the use of collateral as a signalling and bonding mechanism and or by the development of a good working relationship between lender and borrower if the form of information asymmetry differs for growth firms or if the effects of information asymmetries are less easily ameliorated then growing firms may be more adversely affected by credit constraints if growth is contingent upon access to credit then the generalised implications for the economy may be significant and detrimental using evidence from a survery of over 6 000 firms conducted in 1992 this paper addresses the extent to which growth firms are adversely affected by a credit constraint the results suggest that the credit constraint for growing firms per se is no greater but growth firms may still experience a credit constraint as a consequence of their relative youth however there is evidence to suggest that firms expecting to grow in the future do perceive a rather tighter credit constraint but this may be partly or wholly offset by a generally better relationship with their bank

dynamic pricing with loss averse consumers and peak end anchoring we study the dynamic pricing implications of a new behaviorally motivated reference price mechanism based on the peak end memory mode this model suggests that consumers anchor on a reference price that is a weighted average of the lowest and most recent prices loss averse consumers are more sensitive to perceived losses than gains relative to this reference price we find that a range of constant pricing policies is optimal for the corresponding dynamic pricing problem this range is wider the more consumers anchor on lowest prices and it persists when buyers are loss neutral in contrast with previous literature in a transient regime the optimal pricing policy is monotone and converges to a steady state price which is lower the more extreme and salient the low price anchor is our results suggest that behavioral regularities such as peak end anchoring and loss aversion limit the benefits of varying prices and caution that the adverse effects of deep discounts on the firm s optimal prices and profits might be more enduring than previous models predict