Framework agreements (FAs) are procurement mechanisms commonly used by buying agencies around the world to satisfy demand that arises over a certain time horizon. This paper is one of the first in the literature that provides a formal understanding of FAs, with a particular focus on the cost uncertainty bidders face over the FA time horizon. We generalize standard auction models to include this salient feature of FAs and analyze this model theoretically and numerically. First, we show that FAs are subject to a sort of winner’s curse that in equilibrium induces higher expected buying prices relative to running first-price auctions as needs arise. Then, our results provide concrete design recommendations that alleviate this issue and decrease buying prices in FAs, highlighting the importance of (i) monitoring the price charged at the open market by the FA winner to bound the buying price; (ii) implementing price indexes for the random part of suppliers’ costs; and (iii) allowing suppliers the flexibility to...
{"title":"Framework Agreements in Procurement: An Auction Model and Design Recommendations","authors":"Y. Gur, Lijian Lu, G. Weintraub","doi":"10.2139/ssrn.2257073","DOIUrl":"https://doi.org/10.2139/ssrn.2257073","url":null,"abstract":"Framework agreements (FAs) are procurement mechanisms commonly used by buying agencies around the world to satisfy demand that arises over a certain time horizon. This paper is one of the first in the literature that provides a formal understanding of FAs, with a particular focus on the cost uncertainty bidders face over the FA time horizon. We generalize standard auction models to include this salient feature of FAs and analyze this model theoretically and numerically. First, we show that FAs are subject to a sort of winner’s curse that in equilibrium induces higher expected buying prices relative to running first-price auctions as needs arise. Then, our results provide concrete design recommendations that alleviate this issue and decrease buying prices in FAs, highlighting the importance of (i) monitoring the price charged at the open market by the FA winner to bound the buying price; (ii) implementing price indexes for the random part of suppliers’ costs; and (iii) allowing suppliers the flexibility to...","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"20 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2017-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81708048","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 analyze how pass-through constrained vendor funds impact promotion planning of both suppliers and retailers. Vendor funds are trade deals in which a supplier offers a retailer a short-term discount on a specific product, encouraging the retailer to discount the product. Past vendor funds have had significant shortcomings. In this paper, we propose the pass-through constrained vendor fund in which the supplier requires the retailer to pass-through a minimal fraction of the discount. The vendor fund offer and selection problem is modeled as a bi-level optimization problem in which a supplier wishes to determine what pass- through constrained vendor fund to offer to a retailer that can accept or reject the offer. First, we formulate the lower-level retailer model as an integer quadratic optimization model to help retailers decide on which vendor funds to accept. Using Lagrangian relaxation methods we create an efficient algorithm with theoretical guarantees and near-optimal performance on Oracle Retail client data. Second, we analyze a bi-level supplier model to determine which vendor fund a supplier should offer. We show that the vendor fund with pass- through constraint mitigates forward-buying by the retailer and coordinates supply chains on the short-term.
{"title":"Pass-through Constrained Vendor Funds for Promotion Planning","authors":"Lennart Baardman, Kiran Panchamgam, G. Perakis","doi":"10.2139/ssrn.2992374","DOIUrl":"https://doi.org/10.2139/ssrn.2992374","url":null,"abstract":"We analyze how pass-through constrained vendor funds impact promotion planning of both suppliers and retailers. Vendor funds are trade deals in which a supplier offers a retailer a short-term discount on a specific product, encouraging the retailer to discount the product. Past vendor funds have had significant shortcomings. In this paper, we propose the pass-through constrained vendor fund in which the supplier requires the retailer to pass-through a minimal fraction of the discount. The vendor fund offer and selection problem is modeled as a bi-level optimization problem in which a supplier wishes to determine what pass- through constrained vendor fund to offer to a retailer that can accept or reject the offer. First, we formulate the lower-level retailer model as an integer quadratic optimization model to help retailers decide on which vendor funds to accept. Using Lagrangian relaxation methods we create an efficient algorithm with theoretical guarantees and near-optimal performance on Oracle Retail client data. Second, we analyze a bi-level supplier model to determine which vendor fund a supplier should offer. We show that the vendor fund with pass- through constraint mitigates forward-buying by the retailer and coordinates supply chains on the short-term.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"26 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2017-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87646752","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}
Problem description: Purchase costs of raw materials required in production tend to fluctuate over time. Mild cost fluctuations merely affect firms’ profitability. Significant variations can lead to supply chain disruption. What are the best contracts to be used in supply chains exposed to fluctuating raw material costs? We ask this question in two contexts—in the presence and the absence of working capital constraint. Academic/practical relevance: We add a framework on how to optimally contract in the presence of stochastic costs and working capital constraints and help managers understand how they can increase profitability. Methodology: We present a game-theoretic study of a bilateral monopoly supply chain with stochastic demand, stochastic input costs, production lead times, and working capital constraints. The upstream firm announces a supply contract to which the downstream firm responds with an order quantity. The contract is a single-price, multi-instrument contract with optional default penalties...
{"title":"Supply Chain Contracting in Environments with Volatile Input Prices and Frictions","authors":"P. Kouvelis, Danko Turcic, Wenhui Zhao","doi":"10.2139/ssrn.2752628","DOIUrl":"https://doi.org/10.2139/ssrn.2752628","url":null,"abstract":"Problem description: Purchase costs of raw materials required in production tend to fluctuate over time. Mild cost fluctuations merely affect firms’ profitability. Significant variations can lead to supply chain disruption. What are the best contracts to be used in supply chains exposed to fluctuating raw material costs? We ask this question in two contexts—in the presence and the absence of working capital constraint. Academic/practical relevance: We add a framework on how to optimally contract in the presence of stochastic costs and working capital constraints and help managers understand how they can increase profitability. Methodology: We present a game-theoretic study of a bilateral monopoly supply chain with stochastic demand, stochastic input costs, production lead times, and working capital constraints. The upstream firm announces a supply contract to which the downstream firm responds with an order quantity. The contract is a single-price, multi-instrument contract with optional default penalties...","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"108 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2017-06-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87630020","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}
In many auctions, buyers are represented by an intermediary that manages their bidding process, along with that of other buyers. Notably, this is prevalent in the real-time online display advertising market, in which advertisers bid for impressions through intermediaries called demand side platforms (DSPs). In turn, intermediaries, when bidding on behalf of their customers, strategize to maximize some internal objective and may only submit a single bid to limit competition on a given item. In the present paper, we propose a framework to analyze the implications of such a campaign coordination role by DSPs, taking as a benchmark the case in which each DSP would manage the bidding process of each advertiser it represents independently of other buyers, a case we refer to as multi-bidding. We show that the adoption of multi-bidding by all intermediaries would lead to an increase in both the social welfare and the seller's revenues. Furthermore, we analyze the impact on buyers in two regimes: i.) without competition among intermediaries and ii.) with competition, with a large number of intermediaries and buyers in an appropriate asymptotic regime. Quite remarkably, we establish that multi-bidding would also lead to an increase in the buyers' side surplus under a very broad set of market characteristics. In particular, as long as the average number of buyers interested in an item is moderate and the coefficient of variation of buyers' values is not too small, moving from coordinated campaigns to multi-bidding leads to a Pareto improvement in the value chain.
{"title":"Auctions in the Online Display Advertising Chain: A Case for Independent Campaign Management","authors":"Amine Allouah, Omar Besbes","doi":"10.2139/ssrn.2919665","DOIUrl":"https://doi.org/10.2139/ssrn.2919665","url":null,"abstract":"In many auctions, buyers are represented by an intermediary that manages their bidding process, along with that of other buyers. Notably, this is prevalent in the real-time online display advertising market, in which advertisers bid for impressions through intermediaries called demand side platforms (DSPs). In turn, intermediaries, when bidding on behalf of their customers, strategize to maximize some internal objective and may only submit a single bid to limit competition on a given item. In the present paper, we propose a framework to analyze the implications of such a campaign coordination role by DSPs, taking as a benchmark the case in which each DSP would manage the bidding process of each advertiser it represents independently of other buyers, a case we refer to as multi-bidding. We show that the adoption of multi-bidding by all intermediaries would lead to an increase in both the social welfare and the seller's revenues. Furthermore, we analyze the impact on buyers in two regimes: i.) without competition among intermediaries and ii.) with competition, with a large number of intermediaries and buyers in an appropriate asymptotic regime. Quite remarkably, we establish that multi-bidding would also lead to an increase in the buyers' side surplus under a very broad set of market characteristics. In particular, as long as the average number of buyers interested in an item is moderate and the coefficient of variation of buyers' values is not too small, moving from coordinated campaigns to multi-bidding leads to a Pareto improvement in the value chain.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"48 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2017-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85195673","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}
What is the relationship between inventory and sales? Clearly, inventory could increase sales: expanding inventory creates more choice (options, colors, etc.) and might signal a popular/desirable product. Or, inventory might encourage a consumer to continue her search (e.g., on the theory that she can return if nothing better is found), thereby decreasing sales (a scarcity effect). We seek to identify these effects in U.S. automobile sales. Our primary research challenge is the endogenous relationship between inventory and demand — e.g., dealers influence their inventory in anticipation of demand. Hence, our estimation strategy relies on weather shocks at upstream production facilities to create exogenous variation in downstream dealership inventory. We find that the impact of adding a vehicle of a particular model to a dealer's lot depends on which cars the dealer already has. If the added vehicle expands the available set of sub-models (e.g., adding a four-door among a set that is exclusively two-door), then sales increase. But if the added vehicle is of the same sub-model as an existing vehicle, then sales actually decrease. Hence, expanding variety should be the first priority when adding inventory — adding inventory without expanding variety is actually detrimental. Based on this insight, given a fixed set of cars, vehicles should be allocated among a group of dealers so as to maximize each dealer's variety. Our data indicate that the implementation of this strategy could increase expected sales by about 2.5% without changing the total number of vehicles in the market, which vehicles are produced or the number of vehicles at each dealership. If the firm is willing to reduce aggregate inventory by a modest 2.9% (and no more than 10% at any one dealer), then the sales impact of the "maximize variety, minimize duplication strategy" doubles, to 5.0%.
{"title":"Does Adding Inventory Increase Sales? Evidence of a Scarcity Effect in U.S. Automobile Dealerships","authors":"Gérard P. Cachon, Santiago Gallino, M. Olivares","doi":"10.2139/ssrn.2286800","DOIUrl":"https://doi.org/10.2139/ssrn.2286800","url":null,"abstract":"What is the relationship between inventory and sales? Clearly, inventory could increase sales: expanding inventory creates more choice (options, colors, etc.) and might signal a popular/desirable product. Or, inventory might encourage a consumer to continue her search (e.g., on the theory that she can return if nothing better is found), thereby decreasing sales (a scarcity effect). We seek to identify these effects in U.S. automobile sales. Our primary research challenge is the endogenous relationship between inventory and demand — e.g., dealers influence their inventory in anticipation of demand. Hence, our estimation strategy relies on weather shocks at upstream production facilities to create exogenous variation in downstream dealership inventory. We find that the impact of adding a vehicle of a particular model to a dealer's lot depends on which cars the dealer already has. If the added vehicle expands the available set of sub-models (e.g., adding a four-door among a set that is exclusively two-door), then sales increase. But if the added vehicle is of the same sub-model as an existing vehicle, then sales actually decrease. Hence, expanding variety should be the first priority when adding inventory — adding inventory without expanding variety is actually detrimental. Based on this insight, given a fixed set of cars, vehicles should be allocated among a group of dealers so as to maximize each dealer's variety. Our data indicate that the implementation of this strategy could increase expected sales by about 2.5% without changing the total number of vehicles in the market, which vehicles are produced or the number of vehicles at each dealership. If the firm is willing to reduce aggregate inventory by a modest 2.9% (and no more than 10% at any one dealer), then the sales impact of the \"maximize variety, minimize duplication strategy\" doubles, to 5.0%.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"188 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2017-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80696707","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}
Online retailers are divided over the optimal use of salvaging in their returns policies. Should firms have restrictive returns policies yet unconstrained use of secondary markets for salvaging, thereby risking oversupply and low salvage values? Or should firms have lenient returns policies while limiting the size of their secondary market, thus engaging in repeated and costly refurbishing activities? This paper investigates optimal returns policy decisions in a competitive environment with endogenous salvaging values. The strategic decisions are two components of the retailer's returns policy: price and restocking fee. We consolidate retailer decisions in a duopoly setup under which endogenous salvaging is modeled as an interaction effect between the primary and secondary market. We find that "smart salvaging" is more profitable and consumer friendly than charging customers to return products and then salvaging them en masse at rock bottom prices in secondary markets. More specifically: if there are exchanges and salvage values are below unit cost then, at equilibrium, it is optimal for retailers to increase restocking fees and prices, which increases profits but reduces customer satisfaction. When salvage values exceed unit cost, only prices increase while restocking fees are eliminated; which boosts both profits and customer satisfaction. Moreover, retailers that asymmetrically dominate their competitors in terms of salvaging can significantly outperform them with regard not only to sales and profits but also to returns policy leniency. This is a win-win outcome because it increases the utility of retailers and customers alike.
{"title":"Competitive Returns Policies with Salvaging: When Less is More","authors":"Felix Röllecke, Arnd Huchzermeier","doi":"10.2139/ssrn.3076740","DOIUrl":"https://doi.org/10.2139/ssrn.3076740","url":null,"abstract":"Online retailers are divided over the optimal use of salvaging in their returns policies. Should firms have restrictive returns policies yet unconstrained use of secondary markets for salvaging, thereby risking oversupply and low salvage values? Or should firms have lenient returns policies while limiting the size of their secondary market, thus engaging in repeated and costly refurbishing activities? This paper investigates optimal returns policy decisions in a competitive environment with endogenous salvaging values. The strategic decisions are two components of the retailer's returns policy: price and restocking fee. We consolidate retailer decisions in a duopoly setup under which endogenous salvaging is modeled as an interaction effect between the primary and secondary market. We find that \"smart salvaging\" is more profitable and consumer friendly than charging customers to return products and then salvaging them en masse at rock bottom prices in secondary markets. More specifically: if there are exchanges and salvage values are below unit cost then, at equilibrium, it is optimal for retailers to increase restocking fees and prices, which increases profits but reduces customer satisfaction. When salvage values exceed unit cost, only prices increase while restocking fees are eliminated; which boosts both profits and customer satisfaction. Moreover, retailers that asymmetrically dominate their competitors in terms of salvaging can significantly outperform them with regard not only to sales and profits but also to returns policy leniency. This is a win-win outcome because it increases the utility of retailers and customers alike.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"24 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2017-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72814647","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}
Many online retailers provide real-time inventory availability information. Customers can learn from the inventory level and update their beliefs about the product. Thus, consumer purchasing behavior may be impacted by the availability information. Based on a unique setting from Amazon lightning deals, which displays the percentage of inventory consumed in real time, we explore whether and how consumers learn from inventory availability information. Identifying the effect of learning on consumer decisions has been a notoriously difficult empirical question because of endogeneity concerns. We address this issue by running two randomized field experiments on Amazon in which we create exogenous shocks on the inventory availability information for a random subset of Amazon lightning deals. In addition, we track the dynamic purchasing behavior and inventory information for 23,665 lightning deals offered by Amazon and use their panel structure to further explore the relative effect of learning. We find evidence...
{"title":"Learning from Inventory Availability Information: Evidence from Field Experiments on Amazon","authors":"Ruomeng Cui, Dennis J. Zhang, Achal Bassamboo","doi":"10.2139/ssrn.2868218","DOIUrl":"https://doi.org/10.2139/ssrn.2868218","url":null,"abstract":"Many online retailers provide real-time inventory availability information. Customers can learn from the inventory level and update their beliefs about the product. Thus, consumer purchasing behavior may be impacted by the availability information. Based on a unique setting from Amazon lightning deals, which displays the percentage of inventory consumed in real time, we explore whether and how consumers learn from inventory availability information. Identifying the effect of learning on consumer decisions has been a notoriously difficult empirical question because of endogeneity concerns. We address this issue by running two randomized field experiments on Amazon in which we create exogenous shocks on the inventory availability information for a random subset of Amazon lightning deals. In addition, we track the dynamic purchasing behavior and inventory information for 23,665 lightning deals offered by Amazon and use their panel structure to further explore the relative effect of learning. We find evidence...","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"8 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2016-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73613169","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}
This article takes advantage of a newly available survey on the Italian industry to analyze the behavior of global value chains (GVCs) in the aftermath of the Great Recession. We design a comprehensive taxonomy of GVC participation modes and explore their impact on firms’ innovativeness and performance. Our findings highlight relevant heterogeneities in how GVC participants fared the crisis. While high-skill relational suppliers display a significant propensity to engage in innovative activities and R&D projects, other modes of GVC participation have no premium compared to domestic companies. This heterogeneity is also reflected in differential productivity and sales growth. Compared to the precrisis trends, we document a severe demand shock for low-skill and subordinated firms, while relational GVCs appear to be somewhat sheltered from the effects of the crisis.
{"title":"Global Value Chains, Innovation, and Performance: Firm-Level Evidence from the Great Recession","authors":"Emanuele Brancati, R. Brancati, A. Maresca","doi":"10.2139/ssrn.2512641","DOIUrl":"https://doi.org/10.2139/ssrn.2512641","url":null,"abstract":"This article takes advantage of a newly available survey on the Italian industry to analyze the behavior of global value chains (GVCs) in the aftermath of the Great Recession. We design a comprehensive taxonomy of GVC participation modes and explore their impact on firms’ innovativeness and performance. Our findings highlight relevant heterogeneities in how GVC participants fared the crisis. While high-skill relational suppliers display a significant propensity to engage in innovative activities and R&D projects, other modes of GVC participation have no premium compared to domestic companies. This heterogeneity is also reflected in differential productivity and sales growth. Compared to the precrisis trends, we document a severe demand shock for low-skill and subordinated firms, while relational GVCs appear to be somewhat sheltered from the effects of the crisis.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"130 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2016-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76227601","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}
In warranty inventory management, customers return allegedly malfunctioning products for replacement. Useful products may be recovered through testing and/or remanufacturing processes. The company must decide on the number of new units to purchase from a production line each period. This decision depends on an array of complex factors including stochastic demand rates, probabilistic yields from both the testing and remanufacturing processes, multiple sources of supply originating from both the stochastic reverse channel and the company's purchasing decisions, and varying levels of information regarding reverse pipeline inventory; we call this latter concept Advance Supply Information (ASI).In this paper we combine all of these elements to formulate a model that analyzes these tactical decisions and the value of ASI in this setting. We use dynamic programming to develop analytical models that determine the optimal ordering decisions under various levels of reverse channel visibility. The curse of dimensionality prohibits us from solving for optimal policies in all cases; thus, we develop heuristic dynamic programs using an aggregated state space that allow for tractable models while incorporating information gained from the pipeline visibility.
{"title":"Warranty Inventory Optimization with Advance Supply Information","authors":"J. Khawam, W. H. Hausman","doi":"10.2139/ssrn.2817694","DOIUrl":"https://doi.org/10.2139/ssrn.2817694","url":null,"abstract":"In warranty inventory management, customers return allegedly malfunctioning products for replacement. Useful products may be recovered through testing and/or remanufacturing processes. The company must decide on the number of new units to purchase from a production line each period. This decision depends on an array of complex factors including stochastic demand rates, probabilistic yields from both the testing and remanufacturing processes, multiple sources of supply originating from both the stochastic reverse channel and the company's purchasing decisions, and varying levels of information regarding reverse pipeline inventory; we call this latter concept Advance Supply Information (ASI).In this paper we combine all of these elements to formulate a model that analyzes these tactical decisions and the value of ASI in this setting. We use dynamic programming to develop analytical models that determine the optimal ordering decisions under various levels of reverse channel visibility. The curse of dimensionality prohibits us from solving for optimal policies in all cases; thus, we develop heuristic dynamic programs using an aggregated state space that allow for tractable models while incorporating information gained from the pipeline visibility.","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"106 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2016-08-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79325103","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}
An important challenge faced by hotels is how to set their premium room price differential over their standard rooms and how to manage the upsell process. Standby upgrades, where the customer is only charged if the upgrade is available at the time of arrival, is one technique that has become increasingly popular in practice for monetizing the premium room inventory that may otherwise go unused. We develop a model of premium room and standby upgrade pricing under an uncertain market size and examine how and when standby upgrades can provide additional revenue for a hotel. When guests are myopic, we show that standby upgrades can be used as a powerful price discrimination tool, especially for hotel properties with high premium-to-standard room ratios. When guests are strategic, the benefit of standby upgrades is significantly diminished; we show that standby upgrades only increase revenue when the hotel property has a low premium-to-standard room ratio. Our findings thus provide guidance on the hotel types and environments that are most suitable for standby upgrades. The online appendix is available at https://doi.org/10.1287/msom.2016.0596 .
{"title":"Would You Like to Upgrade to a Premium Room? Evaluating the Benefit of Offering Standby Upgrades","authors":"Övünç Yılmaz, Pelin Pekgün, Mark E. Ferguson","doi":"10.1287/msom.2016.0596","DOIUrl":"https://doi.org/10.1287/msom.2016.0596","url":null,"abstract":"An important challenge faced by hotels is how to set their premium room price differential over their standard rooms and how to manage the upsell process. Standby upgrades, where the customer is only charged if the upgrade is available at the time of arrival, is one technique that has become increasingly popular in practice for monetizing the premium room inventory that may otherwise go unused. We develop a model of premium room and standby upgrade pricing under an uncertain market size and examine how and when standby upgrades can provide additional revenue for a hotel. When guests are myopic, we show that standby upgrades can be used as a powerful price discrimination tool, especially for hotel properties with high premium-to-standard room ratios. When guests are strategic, the benefit of standby upgrades is significantly diminished; we show that standby upgrades only increase revenue when the hotel property has a low premium-to-standard room ratio. Our findings thus provide guidance on the hotel types and environments that are most suitable for standby upgrades. \u0000 \u0000The online appendix is available at https://doi.org/10.1287/msom.2016.0596 .","PeriodicalId":49886,"journal":{"name":"Manufacturing Engineering","volume":"46 1","pages":""},"PeriodicalIF":0.3,"publicationDate":"2016-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81254377","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}
京公网安备 11010802042870号
京ICP备2023020795号-1
扫码关注我们
求助内容：
应助结果提醒方式：