Global facility network design in the presence of competition

We study the facility network design problem for a global firm that is a monopolist seller in its domestic market but faces local competition in its foreign market. The global firm produces in the face of demand and exchange rate uncertainty but can postpone localization and distribution of the output until after uncertainties are resolved. The competitor in the foreign market, however, enjoys the flexibility of postponing all production activities until after uncertainties are resolved. The two firms engage in an ex-post Cournot competition in the foreign market. We consider three potential network configurations for the global firm. Under a linear demand function, we provide the necessary and sufficient condition that one of the three networks is the global firm’s optimal choice, and explore how the presence of foreign competition affects the sensitivity of the global firm’s design to various cost parameters and market uncertainties.     

Duopolistic competition under risk aversion and uncertainty

A monopolist typically defers entry into an industry as both price uncertainty and the level of risk aversion increase. By contrast, the presence of a rival typically hastens entry under risk neutrality. Here, we examine these two opposing effects in a duopoly setting. We demonstrate that the value of a firm and its entry decision behave differently with risk aversion and uncertainty depending on the type of competition. Interestingly, if the leader’s role is defined endogenously, then higher uncertainty makes her relatively better off, whereas with the roles exogenously defined, the impact of uncertainty is ambiguous.     

Optimal production strategy under demand fluctuations: Technology versus capacity

This paper provides a comparative analysis of five possible production strategies for two kinds of flexibility investment, namely flexible technology and flexible capacity, under demand fluctuations. Each strategy is underpinned by a set of operations decisions on technology level, capacity amount, production quantity, and pricing. By evaluating each strategy, we show how market uncertainty, production cost structure, operations timing, and investment costing environment affect a firm’s strategic decisions. The results show that there is no sequential effect of the two flexibility investments. We also illustrate the different ways in which flexible technology and flexible capacity affect a firm’s profit under demand fluctuations. The results reveal that compared to no flexibility investment, flexible technology investment earns the same or a higher profit for a firm, whereas flexible capacity investment can be beneficial or harmful to a firm’s profit. Moreover, we prove that higher flexibility does not guarantee more profit. Depending on the situation, the optimal strategy can be any one of the five possible strategies. We also provide the optimality conditions for each strategy.     

Rivalry and uncertainty in complementary investments with dynamic market sharing

We study the effects of revenue and investment cost uncertainty, as well non-preemption duopoly competition, on the timing of investments in two complementary inputs, where either spillover-knowledge is allowed or proprietary-knowledge holds. We find that the ex-ante and ex-post revenue market shares play a very important role in firms’ behavior. When competition is considered, the leader’s behavior departs from that of the monopolist firm of Smith (Ind Corp Change 14:639–650, 2005). The leader is justified in following the conventional wisdom (i.e., synchronous investments are more likely), whereas, the follower’s behavior departs from that of the conventional wisdom (i.e., asynchronous investments are more likely).     

社会互动视角下的服务型企业最优运营策略研究

本文主要研究在社会互动的影响下,服务型企业如何制定以价格、服务速率为代表的运营管理策略,从而实现利润最大化。首先,基于M/M/1排队模型对顾客购买决策过程进行建模分析,考虑单个服务型企业在实现利润最大化的目标条件下,社会互动的作用如何影响定价和服务速率决策;其次,研究在竞争市场环境中,社会互动如何影响市场均衡状态下各企业的运营决策和市场份额。结果表明,无论在垄断还是竞争的市场环境中,社会互动对服务型企业的最优运营决策均有不同程度与方向的影响。     

Price and quality competition: The effect of differentiation and vertical integration

This paper studies an instance of price and quality competition between firms as seen in the recent Internet market. Consumers purchase a product based on not only its price but also its quality level; therefore, two firms compete in determining their prices and quality levels to maximize their profits. Characterizing this competition from a microeconomic viewpoint, we consider two possible business strategies that firms can utilize to overcome the competition—the differentiation and the vertical integration with another complementary firm. We show an interesting result not seen in the well-known Bertrand price competition: not only does the differentiation always increase the firms’ profits, but also it can increase the consumer’s welfare in a quality-sensitive market. We further derive that under some mild conditions the monopolistic vertical integration that excludes the combination-purchase with a competitor’s product is beneficial for both the integrated firm and its consumers.     

Patent-investment games under asymmetric information

This paper analyzes preemptive patenting in a two-stage real options game where an incumbent firm competes with a potential entrant firm for the patent of a substitute product in a product market with profit flow uncertainty. The incumbent suffers loss of monopoly in the product market if the entrant acquires the patent of a substitute product and later commercializes the product. Our patent-investment game model assumes that the entrant has complete information on the incumbent’s commercialization cost while the incumbent only knows the distribution of the entrant’s cost. We investigate the impact of information asymmetry on the preemption strategies adopted by the two competing firms on patenting the substitute product by comparing the optimal preemption strategies and the real option value functions of the two competing firms under complete information and information asymmetry. Our analysis reveals that the informationally disadvantaged incumbent always suffers from loss in its real option value of investment since it tends to act more aggressively in competing for the patent. On the other hand, the real option value of investment of the informationally advantaged entrant may be undermined or enhanced. The incumbent’s aggressive response under information asymmetry may lead to reversal of winner in the patent race. We also examine how information asymmetry may affect the occurrence of sleeping patent and the corresponding expected duration between the two stages of patenting and product commercialization.     

Improving reliability of a shared supplier with competition and spillovers

Supplier reliability is a key determinant of a manufacturer’s competitiveness. It reflects a supplier’s capability of order fulfillment, which can be measured by the percentage of order quantity delivered in a given time window. A perfectly reliable supplier delivers an amount equal to the order placed by its customer, while an unreliable supplier may deliver an amount less than the amount ordered. Therefore, when suppliers are unreliable, manufacturers often have incentives to help suppliers improve delivery reliability. Suppliers, however, often work with multiple manufacturers and the benefit of enhanced reliability may spill over to competing manufacturers. In this study, we explore how potential spillover influences manufacturers’ incentives to improve supplier’s reliability. We consider two manufacturers that compete with imperfectly substitutable products on Type I service level (i.e., in-stock probability). The manufacturers share a common supplier who, due to variations in production quality or yield, is unreliable. Manufacturers may exert efforts to improve the supplier’s reliability in the sense that the delivered quantity is stochastically larger after improvement. We develop a two-stage model that encompasses supplier improvement, uncertain supply and random demand in a competitive setting. In this complex model, we characterize the manufacturers’ equilibrium in-stock probability. Moreover, we characterize sufficient conditions for the existence of the equilibrium of the manufacturers’ improvement efforts. Finally, we numerically test the impact of market characteristics on the manufacturers’ equilibrium improvement efforts. We find that a manufacturer’s equilibrium improvement effort usually declines in market competition, market uncertainty or spillover effect, although its expected equilibrium profit typically increases in spillover effect.     

A note on price and quality competition between asymmetric firms

This paper analyzes the impact of asymmetry between firms on the outcome of price and quality competition from a microeconomic viewpoint. Consumers purchase a product based on not only its price but also its quality level; therefore, two firms compete in determining their prices and quality levels to maximize their profits. The asymmetry arises from the difference in consumers’ loyalty to each firm; that asymmetry then determines a character of differentiation between firms. Our purpose is to show how asymmetry influences competition under varying consumers’ price- and quality-sensitivity. In doing so, we extend earlier work in the area of price and quality competition. We show that in both the moderately quality-sensitive and price-sensitive markets, higher consumers’ sensitivity as well as lower consumers’ loyalty to any firm leads to intense competition, resulting in a decrease of both firms’ equilibrium profits. On the other hand, in highly quality-sensitive market, asymmetry compels the smaller firm to change its competitive strategy. In general, this is more beneficial to the larger firm, as the smaller firm’s profit tends to decline. In the worst case, the smaller firm is driven out of business under equilibrium.     

Real options in strategic investment games between two asymmetric firms

This paper examines strategic investment games between two firms that compete for optimal entry in a project that generates uncertain revenue flows. Under asymmetry on both the sunk cost of investment and revenue flows of the two competing firms, we investigate the value of real investment options and strategic interaction of investment decisions. Compared to earlier models that only allow for asymmetry on sunk cost, our model demonstrates a richer set of strategic interactions of entry decisions. We provide a complete characterization of pre-emptive, dominant and simultaneous equilibriums by analyzing the relative value of leader’s and follower’s optimal investment thresholds. In a duopoly market with negative externalities, a firm may reduce loss of real options value by selecting appropriate pre-emptive entry. When one firm has a dominant advantage over its competitor, both the dominant firm and dominated firm enter at their respective leader’s and follower’s optimal thresholds. When the pre-emptive thresholds of both firms happen to coincide, the two firms enter simultaneously. Under positive externalities, firms do not compete to lead.     

Evaluation of firm’s loss due to incomplete information in real investment decision

We investigate the effect of incomplete information in a model where a start-up with a unique idea and technology pioneers a new market but will eventually be expelled from the market by a large firm’s subsequent entry. We evaluate the start-up’s loss due to incomplete information about the large firm’s behavior. We clarify conditions under which the start-up needs more information about the large firm. The proposed method of evaluating the loss due to incomplete information could also be applied to other real options models involving incomplete information.     

Preemptive patenting under uncertainty and asymmetric information

This paper examines the investment behaviour of an incumbent and a potential entrant that are competing for a patent with a stochastic payoff. We incorporate asymmetric information into the model by assuming that the challenger has complete information about the incumbent whereas the latter does not know the precise value of its opponent’s investment cost. We find that even a small probability of being preempted gives the informationally-disadvantaged firm an incentive to invest at the breakeven point where it is indifferent between investing and being preempted. By investing inefficiently early to protect its market share, the incumbent gives up not only its option to delay the investment, but also reduces the value of the firm by an amount that increases with the investment cost incurred and the potential loss of market share.     

考虑库存和市场占有率的纵向一体化

本文将传统的双重加价模型扩展到包含库存因素的上下游厂商均为垄断企业、下游厂商为寡头垄断企业而上游厂商为完全垄断企业以及上游厂商为寡头垄断企业而下游厂商为完全垄断企业的一体化模型，着重探讨了库存成本和市场占有率对纵向一体化的影响。研究结果表明，只有在库存成本较低时，传统的结论才得以维持；一体化始终导致消费者福利上升而不受市场占有率的影响，但一体化使厂商的总利润增加要在市场占有率较高时才能实现。     

Selling multiple units to strategic consumers

We consider a monopolist firm selling to strategic customers who may purchase more than one unit of a product in a two-period model. We provide closed-form solutions for the firm’s optimal prices and show that they are non-monotonic in both the value of the second unit and the strategic level of customers. Particularly, the first-period price can increase as customers become more strategic, in contrast to the single-unit setting where it always decreases in the strategic level of customers.     

Volume flexibility and capacity investment: a real options approach

This paper considers the investment decision of a firm where it has to decide about the timing and capacity. We obtain that in a fast-growing market, right after investment the firm produces below capacity, where the utilization rate (the proportion of capacity that is used for production right after the investment) increases with market uncertainty for a very big market trend, and shows no monotonicity for a moderately large market trend. On the other hand, we get that, for a slowly growing or shrinking market, the firm produces up to capacity right after investment. In the intermediate case, the firm produces up to capacity right after investment when uncertainty is low and below capacity when uncertainty is high, whereas the utilization rate decreases with the market uncertainty.     

Risk-averse order policies with random prices in complete market and retailers’ private information

We consider a retailer who orders products before the price for them becomes known. The price is an outcome of perfect competition in a complete market. Since the demand is price sensitive, the uncertainty in prices induces uncertain profits and associated risks. In this paper we show that if the retailer is risk averse and, as a result, selects a utility function of profit to maximize, then his subjective assessment of future prices is affected by the risk attitude. This, in turn, introduces a bias in retailer’s ordering policies. By considering coordinated pricing and ordering policies we derive a relationship between risk aversion, retailer’s subjective (private) assessment and the market implied, risk neutral forecast. This relationship and the induced bias are then illustrated for two typical operations management strategies which involve either inventory considerations or promotions avoiding accumulation of stocks.     

Collaboration in R&D activities: Firm-specific decisions

In this paper, we study the strategic R&D collaboration by introducing a virtual player to reveal cooperative incentives and keeping investment share and market share independent of each other. Not consistently with the traditional opinions, we show that the superiority of the R&D cartel is due to the coexistence of cooperation and competition when spillovers are exogenous. Moreover, we conclude that high R&D input share must be reflected implicitly by high market share, and that firms’ R&D decisions vary with firms’ specific characteristics when spillovers is endogenous.     

When should service firms provide free experience service?

By providing a free experience service, a service firm can attract more uninformed customers. However, it could reversely effect the delay-sensitive, informed customers’ decision. In this paper, we study a priority queueing system with free experience services. We study the customer behavior in equilibrium after we derive the expected customer waiting time. We then construct the service firm’s revenue function and obtain an optimal strategy for the service firm. Our results suggest that when the market size of informed customers is relatively small, the firm should consider providing free experience services for uninformed customers. Conversely, if the demand rate of potential informed customers is quite high, the firm should ignore uninformed customers.     

EMISSION PERMITS UNDER MONOPOLY

This paper studies the regulation of pollution emissions when one polluting firm is a monopolist in its output market and other polluting firms are competitive in their output markets. It is shown that an emissions permit system can generally support a second-best allocation when the monopolistic firm has market power in the emission permit market. The second-best permit regulation specifies a permit endowment for the monopolist such that the monopolist is a net supplier of permits in the equilibrium. Extensions to cases of multiple monopoly, monopsony, and oligopoly are discussed.     

Optimizing referral reward programs under impression management considerations

We examine referral reward programs (RRP) that are intended for a service firm to encourage its current customers (inductors) to entice their friends (inductees) to purchase the firm’s service. By considering the interplay among the firm, the inductor, and the inductee, we solve a “nested” Stackelberg game so as to determine the optimal RRP in equilibrium. We determine the conditions under which it is optimal for the firm to reward the inductor only, reward the inductee only, or reward both. Also, our results suggest that RRP dominates direct marketing when the firm’s current market penetration or the inductor’s referral effectiveness is sufficiently high. We then extend our model to incorporate certain key impression management factors: the inductor’s intrinsic reward of making a positive impression by being seen as helping a friend, the inductor’s concerns about creating a negative impression when making an incentivized referral, and the inductee’s impression of the inductor’s credibility when an incentive is involved. In the presence of these impression management factors, we show that the firm should reward the inductee more and the inductor less. Under certain conditions, it is optimal for the firm to reward neither the inductor nor the inductee so that the optimal RRP relies purely on unincentivized word of mouth.