Strategic wholesale pricing in a supply chain with a potential entrant

This paper develops an adverse selection model for a two-stage supply chain with one supplier, one retailer, and a potential outside entrant supplier who makes a partially substitutable product. The work is different from most research on entry deterrence that only considers a single-stage model. Our main interest is to investigate how the incumbent supplier can strategically maximize her profit by a wholesale pricing policy when facing the potential entrant. We focus on a model where the entrant supplier will sell her product through the same incumbent retailer. We derive the optimal decisions for each player and study the comparative statics of the equilibrium. To investigate how the supply chain structure may affect the deterrence strategy of the incumbent supplier, we also consider three alternative models with different channel structures, when both suppliers sell their products directly, when the entrant has another independent retailer, and when the entrant sells her product directly. Through the comparison, we find that the existence of the common downstream retailer often enhances the deterring motivation of the incumbent supplier.     

店中店还是转卖？促销努力下制造商入侵策略选择

本文在双寡头市场环境下,利用Hotelling模型,研究了新进入制造商的最优入侵模式以及产品促销的决策。其中在位者以店中店模式存在于市场中,入侵者首先决定以传统的转卖模式还是以店中店模式进入市场,其次还需要决定是否进行产品促销。研究结果表明,不同的入侵模式影响新进入者的促销策略。店中店模式中零售商要求的收益共享比例是影响入侵者模式选择的主要因素。当该比例较低时,入侵者倾向于店中店模式。最后,利用数值实验,分析了收益共享比例和产品差异化程度对供应链成员利润的影响。     

Quality and entry deterrence

We analyze the role of quality, which we define as an attribute of a product that increases consumers’ willingness to buy, as a competitive tool in a quality-price setting. We consider an incumbent’s entry-deterrence strategies using quality as a deterrent when faced by a potential entrant. We investigate settings motivating the incumbent to blockade the entrant (i.e., prevent entry without extra effort), deter the entrant (i.e., prevent entry with extra effort), or accommodate the entrant (i.e., allow the entry to take place). We identify conditions under which the incumbent may actually over-invest in quality to deter entrance. More interestingly, we also identify conditions under which the incumbent may decrease his quality investment to make it easier for the entrant to penetrate the market. Our model sheds light on entry scenarios of particular platform product markets such as the entry of Xbox to the video game console market.     

Strategic investment timing under asymmetric access charge regulation in telecommunications

In a liberalized telecommunications market, an incumbent has several advantages over any entrant. An asymmetric access charge regulation for two such asymmetric firms stimulates competitive investment. We show that an entrant with a cost disadvantage has an incentive to invest as a leader under an asymmetric access charge regulation. These results fit well with the findings of previous empirical work. Moreover, we also investigate the effects of an asymmetric access charge regulation on competitive investment strategies.     

A competitive hub location and pricing problem

We formulate and solve a new hub location and pricing problem, describing a situation in which an existing transportation company operates a hub and spoke network, and a new company wants to enter into the same market, using an incomplete hub and spoke network. The entrant maximizes its profit by choosing the best hub locations and network topology and applying optimal pricing, considering that the existing company applies mill pricing. Customers’ behavior is modeled using a logit discrete choice model. We solve instances derived from the CAB dataset using a genetic algorithm and a closed expression for the optimal pricing. Our model confirms that, in competitive settings, seeking the largest market share is dominated by profit maximization. We also describe some conditions under which it is not convenient for the entrant to enter the market.     

Dynamic entry deterrence in the UK pathology services market

This paper describes work on a dynamic model of entry deterrence applied to the UK National Health Service (NHS) market for pathology services. The model, based on a game theoretical framework, is concerned with decision support applications. Presented in this paper is a case study analysis of a geographical region in which a provider of pathology services is concerned at the prospect of being exposed to competition from a new entrant. The incumbent provider may undertake strategic investments to create a stock of knowledge and goodwill with the intention of dissuading others from entering the market. The effect of a new entrant is modelled as perturbation of a pre-existing stable Nash-Cournot equilibrium in an oligopolistic market, and is influenced by market forces subject to Government regulation. The original contribution of this study is to identify the nature of these potential strategic investments and their interaction with cash flows. Recent historical data and managerial analysis are used to characterise market growth. An estimate of the incumbent provider's market share which is at risk can be found by examining the local geographical distribution of providers and purchasers of pathology services. On the basis of this analysis we propose a method for obtaining the strategic investment profile which minimises the total investment required to deter entry.     

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.     

Controlling for supplier switching in the presence of real options and asymmetric information

Applying a real option approach, this paper examines how asymmetric information alters key variables of a firm’s supplier switching process, such as the timing of contracting (hurried versus delayed contracting), transfer payments, set-up, switching, and abandonment decisions. In a symmetric information setting, delayed contracting is unambiguously beneficial. Abandoning the once established relation with the entrant supplier is never an issue. In contrast, under asymmetric information hurried contracting with potentially abandoning the relation can be beneficial. Consistent with adverse selection models, we find that under delayed contracting, in equilibrium, the firm switches less frequently to the entrant supplier (switching inertia). Surprisingly, we also find that under hurried contracting the firm switches more frequently to the entrant supplier (switching acceleration) and may abandon the relation. Finally, we study how these key variables of the supplier switching process change when also the incumbent supplier has private information (two-sided asymmetric information case).     

The value of entrant manufacturers: A study of competition and risk for donor-funded procurement of essential medicines

Global-health purchasing organizations (POs) want to increase access to essential medicines in low-income countries. One way to purchase more medicines with limited funds is to contract with generics manufacturers, thereby increasing competition and lowering prices. However, many POs fear that these entrants are less reliable than others and increase supply risks: failure to adhere to lead times and supplier defaults may cause disruptions that result in unsuccessful medical treatments. The problem can be remedied or at least reduced if POs have a sound basis for assessing manufacturers. To this end, we develop a mathematical framework that supports decision-makers in an integrated evaluation of an entrant’s effect on purchasing costs and supply risks. Our approach accounts for the characteristics of donor-funded global-health markets and the particular tasks and specific challenges of POs in these markets. More specifically, our approach enables a PO to quantify a potential entrant’s value depending on important characteristics of the incumbent and the entrant manufacturer. We use data from a project for donor-funded procurement of Depot Medroxyprogesterone Acetate (DMPA) of two large POs. Our results show the feasibility of our approach for POs, manufacturers, and philanthropic investors in the global-health domain, and we explore the trade-off between competition and supply risks and provide insights into how the entrant’s value is affected by parameters like production costs, capacity, lead time and default risk, and in-country registration.     

Using hydropower to smooth intermittent and unreliable sources of generation

This work describes, in part, the extent to which the large hydropower system on the Snake and Columbia rivers, and tributaries, could be used to ‘smooth’ or level the intermittent contributions of large numbers of wind generators, so that the sum of these contributions becomes reliable. Data for wind generators on site is given, the methods by which the ‘smoothing’ would occur is described, and a computer simulation model of the Pacific Northwest hydropower system is used to develop several case studies. The several constraints imposed on the flexibility of the hydropower system are defined by streamflow restrictions at the hydropower projects.     

批发价格与收益共享合约并存下的供应链信息泄露研究

信息泄露是供应链企业之间进行信息共享的障碍之一,本文考虑供应商与在位者零售商、进入者零售商之间缔结不同类型合约下的信息泄露问题。鉴于供应商与在位者之间具有较长期的合作关系,他们之间以收益共享合约进行交易,而考虑到进入者零售商新进入此市场,他与供应商之间以批发价格合约进行交易。基于信号博弈的研究框架,分析了此设定下所导致的纯策略完美贝叶斯均衡,并给出了分离均衡、混同均衡以及非泄露均衡出现的条件。研究发现,当供应商与在位者之间的收益共享比例和供应商向进入者提供的批发价格满足一定条件时,供应商有动机不泄露在位者的订货量信息,即出现非泄露均衡。最后,通过数值算例对在位者、进入者以及供应商在分离均衡和非泄露均衡中的利润进行了比较分析。     

The stochastic economic lot sizing problem for non-stop multi-grade production with sequence-restricted setup changeovers

We study a variant of the stochastic economic lot scheduling problem (SELSP) encountered in process industries, in which a single production facility must produce several different grades of a family of products to meet random stationary demand for each grade from a common finished-goods (FG) inventory buffer that has limited storage capacity. When the facility is set up to produce a particular grade, the only allowable changeovers are from that grade to the next lower or higher grade. Raw material is always available, and the production facility produces continuously at a constant rate even during changeover transitions. All changeover times are constant and equal to each other, and demand that cannot be satisfied directly from inventory is lost. There is a changeover cost per changeover occasion, a spill-over cost per unit of product in excess whenever there is not enough space in the FG buffer to store the produced grade, and a lost-sales cost per unit short whenever there is not enough FG inventory to satisfy the demand. We model the SELSP as a discrete-time Markov decision process (MDP), where in each time period the decision is whether to initiate a changeover to a neighboring grade or keep the set up of the production facility unchanged, based on the current state of the system, which is defined by the current set up of the facility and the FG inventory levels of all the grades. The goal is to minimize the (long-run) expected average cost per period. For problems with more than three grades, we develop a heuristic solution procedure which is based on decomposing the original multi-grade problem into several 3-grade MDP sub-problems, numerically solving each sub-problem using value iteration, and constructing the final policy for the original problem by combining parts of the optimal policies of the sub-problems. We present numerical results for problem examples with 2–5 grades. For the 2- and 3-grade examples, we numerically solve the exact MDP problem using value iteration to obtain insights into the structure of the optimal changeover policy. For the 4- and 5-grade examples, we compare the performance of the decomposition-based heuristic (DBH) solution procedure against that obtained by numerically solving the exact problem. We also compare the performance of the DBH method against the performance of three simpler parameterized heuristics. Finally, we compare the performance of the DBH and the exact solution procedures for the case where the FG inventory storage consists of a number of separate general-purpose silos capable of storing any grade as long as it is not mixed with any other grade.     

Mathematical modelling of immune reaction against gliomas: Sensitivity analysis and influence of delays

In the paper we considered a model of immune reaction against malignant glioma. The model proposed by Kronik et al. (Cancer Immunol. Immunother., 2008) describes simplified interactions between tumour cells and five components of the immune system. We studied the effects of uncertainties of the parameters values to the system behaviour. We showed that the tumour growth rate is one of the most important parameters only in case of fast growing tumours, that is for GBM in our case.On the basis of the performed sensitivity analysis we proposed a reduced model in which the role of time delays in loops appearing in the described interactions is considered. The proposed model includes only two main components of the reaction, that is tumour cells and cytotoxic T-lymphocytes. It occurs that although the reduced system is described by several non-linear terms with three time delays, its dynamics is simple and time delays have hardly any influence on it.Both considered models confirmed that the non-linearities present in interactions between tumour cells and CTLs play a major role in the system dynamics, while other components or delays can be taken into account as supplementary elements only.     

Analysis of industry equilibria in models with sustaining and disruptive technology

This paper analyzes a special type of technology evolution, referred to in the literature as disruptive technology vs. sustaining technology. In general, “old” products based on sustaining technology are perceived to be superior to the “new” ones based on disruptive technology. However, the latter have distinctive features that allow them to attract an exclusive set of customers. Examples include notebooks vs. netbooks, hard-disk drives vs. solid-state drives, laser printers vs. inkjet printers, etc. We consider a model with an established firm and an entrant firm that have heterogeneous product-offering capabilities: the established firm can offer either or both types of products, while the entrant firm can only offer new products. Firms make capacity, pricing, and quantity decisions that maximize their ex-ante profit. Within this framework, we analyze deterministic games with perfect information and stochastic games with uncertain valuation of the disruptive technology. Equilibrium decisions are discussed under various market conditions, as well as under dedicated vs. flexible capacity assumptions.     

Stochastic optimal control of internal hierarchical labor markets

This paper develops an optimal control model for a graded manpower system where the demand for manpower is uncertain. The organization's objective is to minimize the discounted costs of operating the manpower system, including excess demand costs. The stock of workers in various grades can be adjusted in two ways. The first method is outside hiring flows, which is the usual control variable used in previous research. The second method is to control the transition rates between grades of the hierarchy, an instrument not previously studied. Incorporating the transition rates into the control variables creates time lags in the control process. The resulting problem is solved numerically using an approximation for the time-lagged control variables. The numerical example is based on the Air Force officer hierarchy. The model is used to examine such issues as the desirability of granting tenure to workers who are not promoted to the highest grade and the effects of length-of-service and demand uncertainty on manpower policy.     

Market share in a post-entry game

This paper investigates the dynamics of market share within a contemporary, real life, entry deterrence situation in the provision of National Health Service (NHS) pathology services. The major conclusion is that the previous Government's initiatives did not succeed in promoting competition in markets where existing NHS providers were operating significantly more efficiently than their neighbours. Evidence suggests managers were influenced more by potential competition from a new private sector entrant than by actual competition among existing providers. The effect of a new entrant is modelled as a perturbation of a pre-existing stable equilibrium in a seeming oligopoly influenced by market forces subject to Government regulation. Economic analysis of the market share which a new entry might gain shows that, on the assumptions made and contrary to expectations, the likely impact of Government regulation of NHS prices would be an increase in price per test in most of the market. Nevertheless the policy objective of improving quality at value for money prices was achieved for the near-monopoly provider within our case study area.     

A Non-linear Multi-criteria Programming Approach for Determining County Emergency Medical Service Ambulance Allocations

In this paper an integer, non-linear mathematical programming model is developed to allocate emergency medical service (EMS) ambulances to sectors within a county in order to meet a government-mandated response-time criterion. However, in addition to the response-time criterion, the model also reflects criteria for budget and work-load, and, since ambulance response is best described within the context of a queueing system, several of the model system constraints are based on queueing formulations adapted to a mathematical programming format. The model is developed and demonstrated within the context of an example of a county encompassing rural, urban and mixed sectors which exhibit different demand and geographic characteristics. The example model is solved using an integer, non-linear goal-programming technique. The solution results provide ambulance allocations to sectors within the county, the probability of an ambulance exceeding a prespecified response time, and the utilization factor for ambulances per sector.     

Sequential market entries and competition modelling in multi-innovation diffusions

The diffusion of innovations for simultaneous processes cannot take into account and properly explain systematic perturbations due to competition-substitution effects if they are examined one by one. A first aspect in simultaneous competing diffusions is the distinction between simultaneous market entries (synchronic competition) and sequential entries (diachronic competition). In the latter case, the beginning of competition may upset the first entrant’s diffusion. A second important aspect in multiple competition is represented by the choice to model the word-of-mouth effect either at the category level (balanced model) or at the brand level, separating the within-brand effect from the cross-brand one (unbalanced model). In this paper, balanced models are studied, and we propose a model that allows for a change in the parameter values of the first entrant as soon as the second one enters the market. The resulting differential system has a closed-form solution that enables, through sales data, an empirical validation of the assumptions underlying the model structure, improving the forecasting accuracy. An application to pharmaceutical drug competition is discussed.     

A simple decision model of counterproliferation

We develop a simple decision model of counterproliferation involving a status quo “incumbent” and a nuclear “entrant”. The problem is examined as a one-stage interaction in two phases: nuclear development and deployment. We examine the conditions that will influence the decision to move pre-emptively against a proliferator's nuclear program. Particular attention is given to the role of uncertainty in determining the expected costs of action at different points in the entrant's weapon's development and deployment cycle. The model permits us to determine the optimal time to act given varying levels of information concerning entrant behavior. In conclusion, we examine the tradeoffs between the expected costs of action and the costs of intelligence.     

Strategic design of competing supply chain networks for inelastic demand

A model for designing the network of a new entrant supply chain under inelastic demand and in the presence of pre-existing competing chains is proposed. These supply chains provide an identical product for a market area. The model considers the location of distribution centres and retail outlets on a discrete set of potential locations. The assumptions of the model are: (1) static competition between the new and pre-existing chains and (2) a probabilistic customer behaviour based on an attraction function depending on both the location and the quality of the retailers. This model also incorporates the impact of the facilities’ location decisions on the operational inventory and shipment decisions. The resulting model is formulated as a mixed integer non-linear programme (MINLP). To solve the MINLP it is transformed to a linear one. We illustrate the model, discuss the results of a real-world case, and investigate the effectiveness of the proposed algorithm using randomly generated examples.