Co-opetition becomes a more and more popular strategy in industry and is a growing force in the innovation landscape. Seldom research has considered the cases that co-opetition firms are providing service to customers who are waiting-time sensitive. This paper studies an M/M/1 queueing model with two service firms who compete the customers from the same source. Customers need to decide whether to join one of two queues or balk. On the other hand, the firms cooperate each other by sharing the waiting area. By assuming that the customers are waiting-time sensitive, but they enjoy the entertainment of the waiting-area as well, we find the Nash equilibriums that each provider decides its own service capacity and the two firms jointly determine the waiting-area entertainment (WAE) level. When the co-opetition market exists, we find some insightful results as below. 1)Only when the market size is large enough and at a suitable WAE level, can the co-opetition or monopoly market form, so a suitable WAE level can help service provider(s) survive and make profit. 2) As the effectiveness of the entertainment options increases, the service providers will adopt the entertainment options, and the optimal service capacities decrease with the effectiveness and converge to the potential market size; 3) When the effectiveness of the entertainment options is high enough, the low decrement of the service capacity will not lead to longer waiting time, the service provider should decrease the WAE level to save cost; 4) When the effectiveness of the entertainment options is too low, the high decrement of the service capacity leads to longer waiting time. To retain customers, the service providers should increase the WEA level to shorten the customers’ perceived waiting time; 5) The entertainment resource sharing in the case of co-opetition creates a higher profit than the case of competition, but lower profit than the case of monopoly.
{"title":"Capacity Co-Opetition in Service Clusters with Waiting-area Entertainment","authors":"Xin Li, Z. Lian, Ying Shi","doi":"10.2139/ssrn.3676177","DOIUrl":"https://doi.org/10.2139/ssrn.3676177","url":null,"abstract":"Co-opetition becomes a more and more popular strategy in industry and is a growing force in the innovation landscape. Seldom research has considered the cases that co-opetition firms are providing service to customers who are waiting-time sensitive. This paper studies an M/M/1 queueing model with two service firms who compete the customers from the same source. Customers need to decide whether to join one of two queues or balk. On the other hand, the firms cooperate each other by sharing the waiting area. By assuming that the customers are waiting-time sensitive, but they enjoy the entertainment of the waiting-area as well, we find the Nash equilibriums that each provider decides its own service capacity and the two firms jointly determine the waiting-area entertainment (WAE) level. When the co-opetition market exists, we find some insightful results as below. 1)Only when the market size is large enough and at a suitable WAE level, can the co-opetition or monopoly market form, so a suitable WAE level can help service provider(s) survive and make profit. 2) As the effectiveness of the entertainment options increases, the service providers will adopt the entertainment options, and the optimal service capacities decrease with the effectiveness and converge to the potential market size; 3) When the effectiveness of the entertainment options is high enough, the low decrement of the service capacity will not lead to longer waiting time, the service provider should decrease the WAE level to save cost; 4) When the effectiveness of the entertainment options is too low, the high decrement of the service capacity leads to longer waiting time. To retain customers, the service providers should increase the WEA level to shorten the customers’ perceived waiting time; 5) The entertainment resource sharing in the case of co-opetition creates a higher profit than the case of competition, but lower profit than the case of monopoly.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"116 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2021-09-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85361358","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"工程技术","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Delivery platforms have recently ventured into "cloud kitchens" (also called ghost or virtual kitchens), which are delivery-only facilities, built typically in locations with high population density, that provide commercial space to multiple restaurant kitchens for preparing their menu items. A cloud kitchen's central location allows for better access to customers, enabling the delivery platform to provide a lower delivery-time guarantee to customers -- this increases profitability for both the delivery platform and the restaurants. A potential second advantage accrues from the ability of the delivery platform to consolidate its driver capacity if multiple restaurants co-locate at the cloud kitchen -- this increases the delivery platform's profitability as it can use the same set of drivers to deliver orders for multiple restaurants. Cloud kitchens, however, come with high rental costs that are directly passed down to the restaurants. We examine the conditions under which a cloud kitchen benefits the three primary stakeholders, namely, the restaurants, the delivery platform, and customers. Our game-theoretic analysis is based on a stylized model consisting of two restaurants and a delivery platform. The two restaurants simultaneously decide whether to stay at their initial (extreme) locations or relocate to a cloud kitchen at a central location. Given the location decisions of the restaurants, the delivery platform decides the delivery-time guarantee for customers and the proportion of the market to serve. Our findings show that both the population density of the city and the economies of scale provided by the cloud kitchen play a significant role in driving the restaurants' location decisions. In line with current industry trends, we show that as the population density increases beyond a threshold, co-locating at the cloud kitchen is first a Pareto-dominant equilibrium for the restaurants and then the unique equilibrium. This equilibrium is also preferred by the delivery platform and the customers, leading to a win-win-win for all the stakeholders.
{"title":"Cloud-Kitchens in High-Density Cities: Economies of Scale Through Co-Location","authors":"A. Rout, Milind Dawande, G. Janakiraman","doi":"10.2139/ssrn.3914446","DOIUrl":"https://doi.org/10.2139/ssrn.3914446","url":null,"abstract":"Delivery platforms have recently ventured into \"cloud kitchens\" (also called ghost or virtual kitchens), which are delivery-only facilities, built typically in locations with high population density, that provide commercial space to multiple restaurant kitchens for preparing their menu items. A cloud kitchen's central location allows for better access to customers, enabling the delivery platform to provide a lower delivery-time guarantee to customers -- this increases profitability for both the delivery platform and the restaurants. A potential second advantage accrues from the ability of the delivery platform to consolidate its driver capacity if multiple restaurants co-locate at the cloud kitchen -- this increases the delivery platform's profitability as it can use the same set of drivers to deliver orders for multiple restaurants. Cloud kitchens, however, come with high rental costs that are directly passed down to the restaurants. We examine the conditions under which a cloud kitchen benefits the three primary stakeholders, namely, the restaurants, the delivery platform, and customers. Our game-theoretic analysis is based on a stylized model consisting of two restaurants and a delivery platform. The two restaurants simultaneously decide whether to stay at their initial (extreme) locations or relocate to a cloud kitchen at a central location. Given the location decisions of the restaurants, the delivery platform decides the delivery-time guarantee for customers and the proportion of the market to serve. Our findings show that both the population density of the city and the economies of scale provided by the cloud kitchen play a significant role in driving the restaurants' location decisions. In line with current industry trends, we show that as the population density increases beyond a threshold, co-locating at the cloud kitchen is first a Pareto-dominant equilibrium for the restaurants and then the unique equilibrium. This equilibrium is also preferred by the delivery platform and the customers, leading to a win-win-win for all the stakeholders.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"27 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2021-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87355786","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"工程技术","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Hsiao-Hui Lee, S. A. Yang, Yuxuan Zhang, Kijin Kim
This paper empirically examines how sectoral co-movement are correlated with trade credit usage in a multi-region setting. Extending the models in Shea (2002) and Raddatz (2010), we develop a framework that captures the impact of trade credit usage on co-movement between sectors within a country and cross countries separately. Using the Multi-Regional Input-Output Table developed by Asian Development bank, we assemble a dataset consisting of 14 manufacturing industries for 53 economies. We provide empirical evidence that trade credit linkage is an influential channel for both the domestic and cross-border shocks to propagate and to create a more profound impact in industries around the globe. We find the impact of domestic credit chain on sectoral co-movement is twice as strong as the international ones. We further examine the time trend of this relationship, and find that from 2000 to 2018, the positive relationship between the intensity of trade credit usage and sectoral correlation decreases. We posit that this could be due to a more diversified global trade pattern changes during these two decades.
{"title":"Credit Chain and Sectoral Co-movement: A Multi-Region Investigation","authors":"Hsiao-Hui Lee, S. A. Yang, Yuxuan Zhang, Kijin Kim","doi":"10.2139/ssrn.3897212","DOIUrl":"https://doi.org/10.2139/ssrn.3897212","url":null,"abstract":"This paper empirically examines how sectoral co-movement are correlated with trade credit usage in a multi-region setting. Extending the models in Shea (2002) and Raddatz (2010), we develop a framework that captures the impact of trade credit usage on co-movement between sectors within a country and cross countries separately. Using the Multi-Regional Input-Output Table developed by Asian Development bank, we assemble a dataset consisting of 14 manufacturing industries for 53 economies. We provide empirical evidence that trade credit linkage is an influential channel for both the domestic and cross-border shocks to propagate and to create a more profound impact in industries around the globe. We find the impact of domestic credit chain on sectoral co-movement is twice as strong as the international ones. We further examine the time trend of this relationship, and find that from 2000 to 2018, the positive relationship between the intensity of trade credit usage and sectoral correlation decreases. We posit that this could be due to a more diversified global trade pattern changes during these two decades.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"86 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2021-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76191865","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"工程技术","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Safety stock is necessary for firms in order to manage the uncertainty of demand. A key component in its determination is the estimation of the variance of the forecast error over lead time. Given the multitude of demand processes that lack analytical expressions of the variance of forecast error, an approximation is needed. It is common to resort to finding the one-step ahead forecast errors variance and scaling it by the lead time. However, this approximation is flawed for many processes as it overlooks the autocorrelations that arise between forecasts made at different lead times. This research addresses the issue of these correlations first by demonstrating their existence for some fundamental demand processes, and second by showing through an inventory simulation the inadequacy of the approximation. We propose to monitor the empirical variance of the lead time errors, instead of estimating the point forecast error variance and extending it over the lead time interval. The simulation findings indicate that this approach provides superior results to other approximations in terms of cycle-service level. Given its lack of assumptions and computational simplicity, it can be easily implemented in any software, making it appealing to both practitioners and academics.
{"title":"Approximations for the Lead Time Variance: A Forecasting and Inventory Evaluation","authors":"Patrick Saoud, N. Kourentzes, J. Boylan","doi":"10.2139/ssrn.3822270","DOIUrl":"https://doi.org/10.2139/ssrn.3822270","url":null,"abstract":"Safety stock is necessary for firms in order to manage the uncertainty of demand. A key component in its determination is the estimation of the variance of the forecast error over lead time. Given the multitude of demand processes that lack analytical expressions of the variance of forecast error, an approximation is needed. It is common to resort to finding the one-step ahead forecast errors variance and scaling it by the lead time. However, this approximation is flawed for many processes as it overlooks the autocorrelations that arise between forecasts made at different lead times. This research addresses the issue of these correlations first by demonstrating their existence for some fundamental demand processes, and second by showing through an inventory simulation the inadequacy of the approximation. We propose to monitor the empirical variance of the lead time errors, instead of estimating the point forecast error variance and extending it over the lead time interval. The simulation findings indicate that this approach provides superior results to other approximations in terms of cycle-service level. Given its lack of assumptions and computational simplicity, it can be easily implemented in any software, making it appealing to both practitioners and academics.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"46 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2021-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89735312","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"工程技术","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The retail e-commerce yields lucrative revenue in many industries. In this work, we provide a strategic perspective by investigating how consumer valuation, product quality, and manufacturers’ competition influence the choice of selling agreement using stylized models. The utility and valuations of consumers are involved in analyzing strategic decisions under different selling agreement that is not trivial to analyze. We first show that agency selling agreement induces a higher retail price, but this can benefit the entire channel; under this agreement, the agency fee and consumer valuation present a nonmonotonic (approximately U-shaped) relation. Even though double marginalization exists, reselling agreement induces the manufacturer to make low-quality product compared to the agency selling agreement, but such a low-quality product is only profitable for the manufacturer. Second, when introducing manufacturers' competition, agency selling agreement can induce a wider quality difference: higher high-quality and lower low-quality. Agency selling agreement also hurts the manufacturer and the entire channel, but this is a preferred format for the low-quality manufacturer. Both the high-quality manufacturer and the entire channel and are profitable to choose the reselling agreement; offering a high-quality product can hurt the manufacturer remains robust. Third, the first-mover manufacturer can get a lower profit than the follower retailer. Moreover, when comparing scenarios with alternative sequences of making decisions, first-mover can lead to disadvantage, in that both supply chain parties prefer to act later rather than earlier. Our work also explains the rationale about why e-commerce firms in China now pay more attention to low-end consumers.
{"title":"Reselling or Agency Selling? Consumer Valuation, Quality Design, and Manufacturers' Competition","authors":"L. Hsiao, Xin Ma, Ying‐ju Chen","doi":"10.2139/ssrn.3782238","DOIUrl":"https://doi.org/10.2139/ssrn.3782238","url":null,"abstract":"The retail e-commerce yields lucrative revenue in many industries. In this work, we provide a strategic perspective by investigating how consumer valuation, product quality, and manufacturers’ competition influence the choice of selling agreement using stylized models. The utility and valuations of consumers are involved in analyzing strategic decisions under different selling agreement that is not trivial to analyze. We first show that agency selling agreement induces a higher retail price, but this can benefit the entire channel; under this agreement, the agency fee and consumer valuation present a nonmonotonic (approximately U-shaped) relation. Even though double marginalization exists, reselling agreement induces the manufacturer to make low-quality product compared to the agency selling agreement, but such a low-quality product is only profitable for the manufacturer. Second, when introducing manufacturers' competition, agency selling agreement can induce a wider quality difference: higher high-quality and lower low-quality. Agency selling agreement also hurts the manufacturer and the entire channel, but this is a preferred format for the low-quality manufacturer. Both the high-quality manufacturer and the entire channel and are profitable to choose the reselling agreement; offering a high-quality product can hurt the manufacturer remains robust. Third, the first-mover manufacturer can get a lower profit than the follower retailer. Moreover, when comparing scenarios with alternative sequences of making decisions, first-mover can lead to disadvantage, in that both supply chain parties prefer to act later rather than earlier. Our work also explains the rationale about why e-commerce firms in China now pay more attention to low-end consumers.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"37 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2021-02-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90509920","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"工程技术","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There are numerous evidence showing that consumers usually experience emotional dissonance (e.g. purchase regret) and anticipate it in consideration set formation process. Our paper investigates how anticipated regret affects consumers' consideration set formation and the relevant implications on sellers' price and assortment competition. We adopt a parallel search paradigm to explore how consumers form their consideration sets and use search depth and search breadth to alleviate anticipated regret, and to check how sellers optimally choose their prices and assortment sizes accordingly. Intuitively, regret not only lowers consumer surplus but also intensifies sellers' competition as consumers have incentive to include more competitive alternatives in consideration set to alleviate regret. However, our findings show that these intuitions may not always hold when search depth (i.e., the number of attributes to evaluate) is a choice. Specifically, we show that sellers may benefit from anticipated regret as it encourages consumers 1) to evaluate more product attributes (i.e., a deeper search depth) to alleviate regret (which increases consumers' willingness to pay); 2) to include less sellers to save search costs (which soften sellers' competition). Surprisingly, our results also show that anticipated regret can achieve a ``win-win-win" situation for consumers, sellers and social planner. We further explore sellers' assortment and price competition in reaction to anticipated regret, and demonstrate that sellers engage in assortment competition when regret intensity is low but price competition when it is high. Lastly, we show that both search cost and assortment may amplify the benefits of anticipated regret. Our analytic results provide potential interpretation to customers' search behavior under ecommerce environment and could guide sellers' assortment strategy and platform's search environment design.
{"title":"Price and Assortment Competition under Consideration Set Formation: the Role of Anticipated Regret","authors":"Qingwei Jin, Mengyan Zhu, Lin Liu, Yi Yang","doi":"10.2139/ssrn.3737953","DOIUrl":"https://doi.org/10.2139/ssrn.3737953","url":null,"abstract":"There are numerous evidence showing that consumers usually experience emotional dissonance (e.g. purchase regret) and anticipate it in consideration set formation process. Our paper investigates how anticipated regret affects consumers' consideration set formation and the relevant implications on sellers' price and assortment competition. We adopt a parallel search paradigm to explore how consumers form their consideration sets and use search depth and search breadth to alleviate anticipated regret, and to check how sellers optimally choose their prices and assortment sizes accordingly. Intuitively, regret not only lowers consumer surplus but also intensifies sellers' competition as consumers have incentive to include more competitive alternatives in consideration set to alleviate regret. However, our findings show that these intuitions may not always hold when search depth (i.e., the number of attributes to evaluate) is a choice. Specifically, we show that sellers may benefit from anticipated regret as it encourages consumers 1) to evaluate more product attributes (i.e., a deeper search depth) to alleviate regret (which increases consumers' willingness to pay); 2) to include less sellers to save search costs (which soften sellers' competition). Surprisingly, our results also show that anticipated regret can achieve a ``win-win-win\" situation for consumers, sellers and social planner. We further explore sellers' assortment and price competition in reaction to anticipated regret, and demonstrate that sellers engage in assortment competition when regret intensity is low but price competition when it is high. Lastly, we show that both search cost and assortment may amplify the benefits of anticipated regret. Our analytic results provide potential interpretation to customers' search behavior under ecommerce environment and could guide sellers' assortment strategy and platform's search environment design.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"116 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2020-11-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79248535","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"工程技术","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
At the end of 2017, the leading ride-hailing platform DiDi Express replaced the commonly used surge pricing mechanism with a queueing mechanism, called the virtual queueing mechanism, in a number of cities across China to mitigate public relations pressure. To explore the benefits of the virtual queueing mechanism over the surge pricing mechanism in terms of operational efficiency, equity, and consumer welfare, we build a model of a data-driven state-dependent open queueing network, which we show can be approximated by an M/M/s+M queueing model with balking and reneging. We derive closed-form expressions for multiple performance metrics, including response rate, demand satisfaction rate, gross merchandise value (GMV), consumer surplus, and degree of inequality. Our theoretical and numerical analyses show that: (1) the virtual queueing mechanism outperforms the surge pricing mechanism in terms of consumer surplus, but is not as advantageous to generate GMV; (2) with respect to the response rate and demand satisfaction rate, the virtual queueing mechanism performs increasingly better than the surge pricing mechanism as demand increases; (3) the virtual queueing mechanism contributes to a more equitable ridesharing system, in the sense that consumer surplus is distributed across different classes of riders in a more balanced way. Using real data, we conduct a case study in Beijing, which verifies all the aforementioned results. The case study further finds that the response and demand satisfaction rates are significantly correlated with driver idleness.
{"title":"Queueing Versus Surge Pricing Mechanism: Efficiency, Equity, and Consumer Welfare","authors":"Yueyang Zhong, Zhixi Wan, Z. Shen","doi":"10.2139/ssrn.3699134","DOIUrl":"https://doi.org/10.2139/ssrn.3699134","url":null,"abstract":"At the end of 2017, the leading ride-hailing platform DiDi Express replaced the commonly used surge pricing mechanism with a queueing mechanism, called the virtual queueing mechanism, in a number of cities across China to mitigate public relations pressure. To explore the benefits of the virtual queueing mechanism over the surge pricing mechanism in terms of operational efficiency, equity, and consumer welfare, we build a model of a data-driven state-dependent open queueing network, which we show can be approximated by an M/M/s+M queueing model with balking and reneging. We derive closed-form expressions for multiple performance metrics, including response rate, demand satisfaction rate, gross merchandise value (GMV), consumer surplus, and degree of inequality. Our theoretical and numerical analyses show that: (1) the virtual queueing mechanism outperforms the surge pricing mechanism in terms of consumer surplus, but is not as advantageous to generate GMV; (2) with respect to the response rate and demand satisfaction rate, the virtual queueing mechanism performs increasingly better than the surge pricing mechanism as demand increases; (3) the virtual queueing mechanism contributes to a more equitable ridesharing system, in the sense that consumer surplus is distributed across different classes of riders in a more balanced way. Using real data, we conduct a case study in Beijing, which verifies all the aforementioned results. The case study further finds that the response and demand satisfaction rates are significantly correlated with driver idleness.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"39 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2020-09-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87328450","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"工程技术","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Dual channel distribution benefits upstream manufacturers but may irritate downstream retailers. The channel conflict only seems to aggravate when retailers are put at information disadvantage. We show this need not be the case. (i) We demonstrate upstream private information can improve channel efficiency and consumer surplus. The main mechanism is the offsetting interplay of signaling distortion and double marginalization: with private selling cost, the manufacturer may signal her cost by cutting the wholesale price; the price cut encourages the retailer to buy more, thereby reducing double marginalization and improving channel efficiency. (ii) We qualify the received wisdom. The general insight that cost information asymmetry reduces efficiency does not work in dual-channel settings. We show incorporating cost information asymmetry can change dual-channel equilibrium substantially — it can turn the retailer and channel from the victims of manufacturer encroachment to its beneficiaries. Also, we rationalize why the retailer can benefit from his information disadvantage, and when he can gain from the manufacturer's selling cost improvement, despite retail competition. (iii) We demonstrate our results are robust for other prevailing arrangements, e.g., two-part tariffs, price competition, imperfect substitution, and simultaneous moves. Our results suggest a more nuanced view of manufacturer encroachment: as private cost information can ease channel conflict and improve consumer surplus, previous studies may have overestimated the harm of encroachment. By highlighting the critical role of cost information asymmetry, this study sharpens our understanding of dual-channel theory and practice.
{"title":"Dual Channel Distribution: The Case for Cost Information Asymmetry","authors":"Long Gao, Liang Guo, Adem Orsdemir","doi":"10.2139/ssrn.3695386","DOIUrl":"https://doi.org/10.2139/ssrn.3695386","url":null,"abstract":"Dual channel distribution benefits upstream manufacturers but may irritate downstream retailers. The channel conflict only seems to aggravate when retailers are put at information disadvantage. We show this need not be the case. (i) We demonstrate upstream private information can improve channel efficiency and consumer surplus. The main mechanism is the offsetting interplay of signaling distortion and double marginalization: with private selling cost, the manufacturer may signal her cost by cutting the wholesale price; the price cut encourages the retailer to buy more, thereby reducing double marginalization and improving channel efficiency. (ii) We qualify the received wisdom. The general insight that cost information asymmetry reduces efficiency does not work in dual-channel settings. We show incorporating cost information asymmetry can change dual-channel equilibrium substantially — it can turn the retailer and channel from the victims of manufacturer encroachment to its beneficiaries. Also, we rationalize why the retailer can benefit from his information disadvantage, and when he can gain from the manufacturer's selling cost improvement, despite retail competition. (iii) We demonstrate our results are robust for other prevailing arrangements, e.g., two-part tariffs, price competition, imperfect substitution, and simultaneous moves. Our results suggest a more nuanced view of manufacturer encroachment: as private cost information can ease channel conflict and improve consumer surplus, previous studies may have overestimated the harm of encroachment. By highlighting the critical role of cost information asymmetry, this study sharpens our understanding of dual-channel theory and practice.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"41 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2020-09-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76614364","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"工程技术","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the incentives and implications of supplier encroachment, when production of the final product requires multiple complementary inputs and each firm is specialized in the production of one input. Entry of a supplier into the final product market gives rise to cross-supply of inputs. We show, contrary to conventional views, that encroachment can increase wholesale prices and can reduce consumer surplus. We also show that encroachment can be beneficial both for the entrant and the incumbent, even when they are equally efficient and move simultaneously in the final product market and there are no prior investments in sales effort or cost reduction. The model yields novel managerial, empirical and policy implications.
{"title":"Supplier Encroachment with Complementary Inputs","authors":"Chrysovalantou Milliou, Konstantinos Serfes","doi":"10.2139/ssrn.3686437","DOIUrl":"https://doi.org/10.2139/ssrn.3686437","url":null,"abstract":"We examine the incentives and implications of supplier encroachment, when production of the final product requires multiple complementary inputs and each firm is specialized in the production of one input. Entry of a supplier into the final product market gives rise to cross-supply of inputs. We show, contrary to conventional views, that encroachment can increase wholesale prices and can reduce consumer surplus. We also show that encroachment can be beneficial both for the entrant and the incumbent, even when they are equally efficient and move simultaneously in the final product market and there are no prior investments in sales effort or cost reduction. The model yields novel managerial, empirical and policy implications.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"17 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2020-09-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76923621","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"工程技术","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider a ride-hailing platform that seeks to maximize its profit by dynamically dispatching cars to pick up customers and centrally relocating cars from one area to another. We model the ride-hailing platform as a closed stochastic processing network. Because the problem appears intractable, we resort to an approximate analysis in the heavy-traffic regime and consider the resulting Brownian control problem. This problem is simplified considerably and reduced to a lower-dimensional singular control problem called the workload formulation. We develop a novel algorithm to solve the workload problem numerically. We apply this algorithm to the workload problem derived from the New York City taxi data set. The solution helps us derive a dynamic control policy for the New York City application. In doing so, we prescribe the ride-hailing platform to first solve an offline linear program, whose optimal solution can be interpreted as the optimal static control policy. This solution helps partition the areas of the city into pools of areas. The platform only uses the information on the fraction of cars in the various pools, which reduces the state space dimension significantly, making the problem computationally tractable. When the distribution of cars among the pools is balanced, the platform follows the optimal static control policy. Otherwise, the platform intervenes to move the system to a more balanced state by either dropping demand or using a dispatch or relocation activity that is not used under the optimal static control policy. We demonstrate the effectiveness of the proposed dynamic control policy for the New York City application using a simulation study.
{"title":"Dynamic Dispatch and Centralized Relocation of Cars in Ride-Hailing Platforms","authors":"B. Ata, Nasser Barjesteh, Sunil Kumar","doi":"10.2139/ssrn.3675888","DOIUrl":"https://doi.org/10.2139/ssrn.3675888","url":null,"abstract":"We consider a ride-hailing platform that seeks to maximize its profit by dynamically dispatching cars to pick up customers and centrally relocating cars from one area to another. We model the ride-hailing platform as a closed stochastic processing network. Because the problem appears intractable, we resort to an approximate analysis in the heavy-traffic regime and consider the resulting Brownian control problem. This problem is simplified considerably and reduced to a lower-dimensional singular control problem called the workload formulation. We develop a novel algorithm to solve the workload problem numerically. We apply this algorithm to the workload problem derived from the New York City taxi data set. The solution helps us derive a dynamic control policy for the New York City application. In doing so, we prescribe the ride-hailing platform to first solve an offline linear program, whose optimal solution can be interpreted as the optimal static control policy. This solution helps partition the areas of the city into pools of areas. The platform only uses the information on the fraction of cars in the various pools, which reduces the state space dimension significantly, making the problem computationally tractable. When the distribution of cars among the pools is balanced, the platform follows the optimal static control policy. Otherwise, the platform intervenes to move the system to a more balanced state by either dropping demand or using a dispatch or relocation activity that is not used under the optimal static control policy. We demonstrate the effectiveness of the proposed dynamic control policy for the New York City application using a simulation study.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"65 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2020-08-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76629539","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"工程技术","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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