Dynamic price competition with discrete customer choices

For many years, dynamic pricing has proven to be an effective tool to increase revenue in the airline and other service industries. Most studies, however, focused on monopolistic models and ignored the fact that nowadays consumers can easily compare prices on the Internet. In this paper, we develop a game-theoretic model to describe real-time dynamic price competition between firms that sell substitutable products. By assuming the real-time inventory levels of all firms are public information, we show the existence of Nash equilibrium. We then discuss how a firm can adapt if it knows only the initial – but not the real-time – inventory levels of its competitors. We compare a firm’s expected revenue under different information structures through numerical experiments.     

Offering a downgraded service to enhance profit?

As market competition is intensified, many firms compete through service. In this paper, we develop a model to examine whether a service supplier should offer a downgraded service as a complement to its high-level service, to compete with a provider of low-level service. We find that only when the service efficiency of the downgraded service is competitively efficient can the service supplier enhance profit by offering the downgraded service. We identify the conditions under which these services can coexist, and when the service supplier should offer the downgraded service. We also show the impact of the downgraded service on pricing decisions, as well as on demands and profits, in such a supply chain. Managerial implications are discussed and numerical examples are included to illustrate the major results in this paper.     

Duopoly competition in networks

This paper presents a new approach to modeling competition between firms in network-based industries, i.e. industries where the firms' technology decisions correspond to choices of networks. Industries having this structure include transportation, telecommunications, and some service industries. Competition is studied between two firms who make both network design decisions and price decisions for services. This situation is modeled as a game, an equilibrium solution corresponding to a Nash equilibrium is defined, and properties of the solution are characterized. Necessary and sufficient conditions are shown for equilibrium solutions and existence of equilibrium solutions is demonstrated. Among the results is that each firm will maximize its own profit by minimizing total industry cost of providing services. An example demonstrating results is presented.     

Investment decisions in the rent-to-own industry in the absence of inventory

This study addresses the product investment decision faced by firms in the rent-to-own industry. In this setting, a customer arrives according to a random process and requests one unit of a product to rent (and eventually own should he/she choose to make all the required payments). At the time of request, if the product is available in inventory, the firm enters into a contractual agreement (by accepting the customer's offer) and rents the merchandise. More interesting and the case considered here, if the requested item is not in inventory, the firm must decide whether to purchase the item in order to rent it out or to simply reject the request. The customer's offer specifies the desired maximum contract length and the payment frequency—from which the firm determines the fixed periodic payment charged. The firm makes its investment decision based on the characteristics of the offer as well as those of the product (eg, initial and resale values, useful life and carrying costs) in essence performing a complicated cost benefit analysis. An extension is also considered whereby instead of simply rejecting the request the firm can adjust the required payment amount. Dynamic programming techniques are used to address the problem and to solve for the firm's optimal decision.     

竞争情形下服务商质量保证策略研究

质量保证策略是服务商获取竞争力的重要手段之一。本文在考虑服务商及其竞争对手的质量承诺水平和质量承诺补偿对其服务需求影响的基础上,构建了质量承诺水平、质量承诺补偿、质量承诺水平和质量承诺补偿三种竞争情形下的博弈模型,并系统分析了不同模型下的质量保证策略。研究发现:一旦有服务商提高质量承诺水平或质量承诺补偿,在质量承诺水平竞争模型下,其他服务商可适当地降低质量承诺水平,而在质量承诺补偿竞争模型下,其他服务商会同时提高质量承诺补偿。此外,在质量承诺水平和质量承诺补偿竞争模型下,若质量承诺水平的成本系数满足一定条件,各个服务商之间会存在纳什均衡。本文对服务市场竞争情形下服务商质量保证策略的制定具有一定的实践意义。     

Flexible working arrangements in context: An empirical investigation through self-organizing maps

This is one of the first studies to utilize Kohonen’s self-organizing maps on flexible work arrangements (FWAs), employee turnover and absenteeism within different national contexts and an array of organizational factors. While the majority of FWAs did not reduce significantly employee turnover or absenteeism, country and industry were significant contextual variables in FWA use: we deciphered six main country regions, where service and manufacturing organizations were important to FWA preferences. We found a curvilinear relationship between turnover and shift-work among manufacturing firms regardless of country: turnover decreases at low levels and increases at high levels of shift-work. We also found strong positive relationships between weekend work and turnover among manufacturing firms regardless of country and firms in the region comprising of Germany, Austria, Sweden, Finland, Denmark, Czech Republic and Belgium. Finally, we found consistently high concentration of organizations with low absenteeism throughout certain industries and countries: noteworthy are service organizations in the Netherlands and manufacturing organizations in Australia. The results demonstrate the contextuality of FWA use across countries and industries, and the usefulness of SOMs for research within human resource management.     

Equilibrium two-part cost structures

We consider an oligopolistic product market in which two competing firms instead of paying a competitive input price choose a two-part tariff. Costs for the input are divided up into upfront fixed costs independent of the output level and reductions in marginal costs. We explore under which competitive settings will such a two-part cost structure correspond to equilibrium behavior in a two stage game. We find that firms in a static model do have an incentive to choose a two-part cost structure when competition in the product market is not too strong and oligopoly rents can be shifted form the rival to the own firm. In a dynamic market when firms use Markov strategies competition is so intense that there are no rents to be shifted and firms do not benefit from two-part cost structures.     

A supply chain network economic model with time-based competition

This paper presents an integrated model for time-cost competition between supply chains with heterogeneous customers. The firms in our model can offer various time options for their production/service to time-sensitive customers. This gives rise of a new concept of time-based supply chain, which we call T-chain, to be the basic element in the competition and extends the inter supply chain competition to a new dimension of time. Assuming the customers are heterogeneous in time-cost bi-criteria decision making, we integrate the discrete choice theory into supply chain network competition and formulate the equilibrium conditions as a multinomial logit based variational inequality problem. Numerical examples are presented for model illustration and managerial insights such as profit maximization for a firm who participates in this supply chain network.     

Technology selection and capacity investment under uncertainty

We analyze the problem of technology selection and capacity investment for electricity generation in a competitive environment under uncertainty. Adopting a Nash-Cournot competition model, we consider the marginal cost as the uncertain parameter, although the results can be easily generalized to other sources of uncertainty such as a load curve. In the model, firms make three different decisions: (i) the portfolio of technologies, (ii) each technology’s capacity and (iii) the technology’s production level for every scenario. The decisions related to the portfolio and capacity are ex-ante and the production level is ex-post to the realization of uncertainty. We discuss open and closed-loop models, with the aim to understand the relationship between different technologies’ cost structures and the portfolio of generation technologies adopted by firms in equilibrium. For a competitive setting, to the best of our knowledge, this paper is the first not only to explicitly discuss the relation between costs and generation portfolio but also to allow firms to choose a portfolio of technologies. We show that portfolio diversification arises even with risk-neutral firms and technologies with different cost expectations. We also investigate conditions on the probability and cost under which different equilibria of the game arise.     

普遍服务、市场竞争与消费者福利

通过构建一个简单的模型分析了普遍服务约束下的垄断产业在引入竞争后的市场竞争,模型很好地展现了垄断产业引入竞争后所出现的“撇脂现象”.通过分析得出:引入竞争后,在位者的盈利和亏损同时减少,但盈利减少得更多;竞争对消费者总体上是有利的,但竞争的好处更多地被低成本的城市消费者所获得,高成本的农村消费者则没有分享到改革的成果;...     

Price setting policies for service systems in case of uncertain demand and service time

Building anM/M/1 queueing model, we determine price and capacity of a service system within monopolistic and competitive frameworks.The existence of a solution for a monopolist is shown and optimal capacity is determined, if demand is elastic.We also determine, within a competitive framework, the number of firms, outputs of each per unit of time, and the relation between price and the number of firms for elastic demands (which has a maximum).Finally, we show that competition supplies a much larger output than monopoly at the price set by the monopolist, if elasticity equals 2.     

存在空箱调运的非对称运输市场定价策略研究

考虑空箱调运成本,本文对垄断和双寡头市场分别研究运输企业在两条相向路径上的定价问题。对于垄断市场,建立了运输企业最优定价策略,并刻画出无空箱调运的潜在需求不平衡区间。对于双寡头市场,考虑同一路径上不同企业潜在运输需求不等的现实情境,求解了非对称企业的伯川德纳什均衡,给出最优定价策略。研究发现,无空箱调运并不意味着较高利润,运输企业没有必要刻意消除空箱调运现象。另外,增加单位载货运输成本和竞争强度会降低企业利润,而提升单位空箱重置成本、价格敏感度和市场不对称程度都会增大企业利润。     

Strategic interactions in traditional franchise systems: Are franchisors always better off?

The effects of price competition and advertising spillover on franchisees’ decision to cooperate and on franchisor’s contractual preferences are investigated. We show that the franchisees’ decision to cooperate or not depends on the type of franchise contracts. Under exclusive territory contracts, any mode of play between franchisees give the same profits to the franchisees and franchisor. Contracts that allow price competition and well targeted local advertising offer a good ground for horizontal cooperation, which may or may not benefit the franchisor depending on whether the prices are strategic substitutes or strategic complements. Contracts in which price competition is allowed and the burden of advertising decisions is totally transferred to the franchisor lead to cooperation between franchisees at the expense of the franchisor. Franchisees do not cooperate to the benefit of the franchisor if local advertising is predatory and price competition is not allowed in the contract, but franchisees are given the responsibility to undertake local advertising. Also, the franchisor endorses cooperation between franchisees when local advertising has a public good nature, but such a cooperation may never occur when the impact of local advertising on demand is significant. We finally show that while some contracts always dominate others, the choice of a franchise contract may also depend on local competition and/or the franchise goodwill.     

A duopoly model with heterogeneous congestion-sensitive customers

This paper analyzes a model with two firms (providers), and two classes of customers. These customers classes are characterized by their attitude towards ‘congestion’ (caused by other customers using the same resources); a firm is selected on the basis of both the prices charged by the firms, and the ‘congestion levels’. The model can be represented by a two-stage game: in the first providers set their prices, whereas in the second the customers choose the provider (or to not use any service at all) for given prices. We explicitly allow the providers to split their resources, in order to serve more than just one market segment. This enables us to further analyze the Paris metro pricing (Pmp) proposal for service differentiation in the Internet.     

基于溢出效应与平台服务的竞争网络平台的销售模式研究

网络平台竞争与发展成为平台运营理论与实践的关键问题,急需解决。本文应用博弈论研究存在溢出效应和网络平台竞争环境下平台服务内生的网络平台销售模式选择,即网络平台商是允许制造商在其网络平台上直销产品的平台销售模式,还是网络平台商先从制造商购买产品再销售给消费者的转销模式。主要研究竞争网络平台的三种结构模型:双转销模式、双平台销售模式和混合模式。研究结果显示:网络平台商的利润随正溢出效应增加而增加,随负溢出效应增加而减少。当网络平台服务敏感程度较高且网络平台竞争较为激烈时,两个网络平台商均选择平台销售模式,形成占优均衡;此时,网络平台商获得最高利润,而且网络零售价和网络平台服务水平最高。     

Integrated revenue management approaches for capacity control with planned upgrades

In many service industries, firms offer a portfolio of similar products based on different types of resources. Mismatches between demand and capacity can therefore often be managed by using product upgrades. Clearly, it is desirable to consider this possibility in the revenue management systems that are used to decide on the acceptance of requests. To incorporate upgrades, we build upon different dynamic programming formulations from the literature and gain several new structural insights that facilitate the control process under certain conditions. We then propose two dynamic programming decomposition approaches that extend the traditional decomposition for capacity control by simultaneously considering upgrades as well as capacity control decisions. While the first approach is specifically suited for the multi-day capacity control problem faced, for example, by hotels and car rental companies, the second one is more general and can be applied in arbitrary network revenue management settings that allow upgrading. Both approaches are formally derived and analytically related to each other. It is shown that they give tighter upper bounds on the optimal solution of the original dynamic program than the well-known deterministic linear program. Using data from a major car rental company, we perform computational experiments that show that the proposed approaches are tractable for real-world problem sizes and outperform those disaggregated, successive planning approaches that are used in revenue management practice today.     

Oligopolistic Markets with Leadership and Demand Functions Possibly Discontinuous

An oligopolistic market in which several firms supply a homogeneous product is considered. One particular firm (leader) sets its decision prior to the other firms (followers), which react by playing a competition in quantities. The aim of the paper is to investigate the existence of suitable strategies for the leader in the presence of aggregative coupled constraints in the case in which (i) the aggregate quantity reaction Q is single-valued and (ii) the aggregate quantity reaction Q is set-valued and the leader has some probabilistic information on the followers choice in their reaction set.     

Privacy and pricing personal information

The issues we address here are – How should a firm (e.g. Internet service provider (ISP)) that is capable of collecting personal information (browsing information, purchase history, etc.) about consumers, price its service, given that consumers vary in their valuation for privacy, and also vary in terms of the value of their personal information to a third party (firms that need consumer information)? Should the firm have a blanket policy of never collecting, or a policy of always collecting and revealing information? Surprisingly we find that in some cases the collector of information may be no worse off in the asymmetric information case than in the full information case. The paper provides a justification for the strategy of some firms such as ISP’s which never collect information and also for the strategy of other firms, like grocery stores that do. We also find that it is non-optimal for the firm to design contracts where the consumer can choose an intermediate level of privacy.     

Dynamic Bertrand Oligopoly

We study continuous time Bertrand oligopolies in which a small number of firms producing similar goods compete with one another by setting prices. We first analyze a static version of this game in order to better understand the strategies played in the dynamic setting. Within the static game, we characterize the Nash equilibrium when there are N players with heterogeneous costs. In the dynamic game with uncertain market demand, firms of different sizes have different lifetime capacities which deplete over time according to the market demand for their good. We setup the nonzero-sum stochastic differential game and its associated system of HJB partial differential equations in the case of linear demand functions. We characterize certain qualitative features of the game using an asymptotic approximation in the limit of small competition. The equilibrium of the game is further studied using numerical solutions. We find that consumers benefit the most when a market is structured with many firms of the same relative size producing highly substitutable goods. However, a large degree of substitutability does not always lead to large drops in price, for example when two firms have a large difference in their size.     

The application of reliability constrained stochastic capacity planning models to the service sector

Emphasis on quality management has recently permeated not only the manufacturing sector, but the service sector as well. Consequently, quality service and consumer satisfaction have become realities for many monopolistic service oriented industries facing competition. In order to effectively implement timely service within these industries (i) capacity plans must be developed which provide adequate staffing during both peakload and offpeak hours, as well as optimal (ii) prices and (iii) reliability of service. This paper builds on the results of Boronico (1992) in illustrating how reliability constrained marginal cost, within which optimal price is embodied, and minimum cost capacity plans may be determined for a service provider facing stochastic demand. Excess demand is not lost, but is deferred: a characteristic that typifies the operation of many delivery systems, such as postal services. Results indicate that marginal costs are convex with respect to reliability of service, while changes in the demand distribution's variability may impact optimal capacity by either increasing or decreasing required capacity.