Coordinating pricing and production decisions in the presence of price competition

In this paper we study the effects of coordinating pricing and production decisions on the improvement of a firm’s position in a price-competitive environment. Assuming duopolistic market conditions, we use game-theoretic concepts and models to analyze two scenarios. A firm’s marketing and production departments may vertically coordinate their pricing and production quantity decisions and the two firms may horizontally compete for price-sensitive random demand. The two scenarios include (i) no coordination and (ii) coordination in both firms. We show that by coordinating their pricing and production decisions, competing firms can increase their profitability—especially when conditions are unfavourable (i.e., with smaller market sizes, higher unit costs and lower unit revenues). While it may be intuitive to expect that coordination will outperform non-coordination, our models provide a means for formalizing and quantifying the differences between the two policies.     

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.     

Investment decisions in the theory of finance: Some antinomies and inconsistencies

The net-present-value rule is a pillar of modern finance theory. As known, it is a capital budgeting rule. Finance theory prescribes the investor to compare the opportunity in hand with an asset of equivalent risk, i.e. to discount cash flows with a risk-adjusted rate of return. This paper aims at showing that inconsistencies and antinomies arise when applying the above-mentioned rule. Further, it turns out that it is actually impossible to compare alternatives equivalent in risk and any decision maker cannot prevent herself to violate the above tenet.     

Restricting weights in supplier selection decisions in the presence of dual-role factors

One of the uses of data envelopment analysis (DEA) is supplier selection. Weight restrictions allow for the integration of managerial preferences in terms of relative importance levels of various inputs and outputs. As well, in some situations there is a strong argument for permitting certain factors to simultaneously play the role of both inputs and outputs. The objective of this paper is to propose a method for selecting the best suppliers in the presence of weight restrictions and dual-role factors. This paper depicts the supplier selection process through a DEA model, while allowing for the incorporation of decision maker’s preferences and considers multiple factors which simultaneously play both input and output roles. The proposed model does not demand exact weights from the decision maker. This paper presents a robust model to solve the multiple-criteria problem. A numerical example demonstrates the application of the proposed method.     

Optimal inventory and insurance decisions for a supply chain financing system with downside risk control

This research considers a supply chain financing system consisting of a capital‐constrained retailer, a supplier and a risk‐averse bank. The retailer may be subject to credit limit because of the bank's downside risk control, and hence, credit insurance should be needed to enhance his financing ability. This paper develops a mathematical optimization model by incorporating insurance policy into the well‐known newsvendor financing model. The optimal inventory and insurance decisions under different scenarios, that is, no insurance, insurance with symmetric information and insurance with asymmetric information, are derived. This work also discusses how the retailer's capital level, the bank's risk aversion, and the insurer's loading factor affect the optimal inventory and insurance decisions. The results show that the retailer will use credit insurance if he is sufficiently capital‐constrained or the insurer's risk loading factor is low enough. Moreover, credit insurance can bring Pareto improvement to the supply chain financing system, which verifies the prevalence of credit insurance in practice. Several numerical experiments are presented to examine the sensitivities of key parameters. Copyright © 2016 John Wiley & Sons, Ltd.     

Reducing incremental costs associated with the delegation of incentive contracting decisions: An analysis of planning and control decisions in a manufacturing setting in the presence of moral hazard

We compare and contrast two specific regimes involving the centralization and delegation of the incentive contracting decision in manufacturing organizations. In the centralization regime, a single individual simultaneously makes the allocation of demand to production facilities and determines the incentive compensation scheme for the managers at the facilities. Under the delegation regime, the demand allocation is decided upon initially by a superior and the incentive contracting decision is subsequently made by a subordinate, who is neither of the two managers in charge of the production facilities. Using the principal–agent paradigm, which assumes that the managerial efforts are unobservable, we demonstrate that the centralization regime performs no worse than the delegation regime. For situations where strategic or other requirements necessitate firms to opt for the delegation of the incentive contracting decision, we propose a heuristic that significantly increases the likelihood of mimicking the allocation and contracting decisions made under the centralized regime.     

Optimal financing and dividend control in the dual model

In this paper, we study the optimal financing and dividend control in the dual model. Under some constraints, we firstly construct two categories of suboptimal models and identify the value functions and the optimal policies corresponding to these two categories of suboptimal models. Finally we identify the value function and present an optimal policy corresponding to the general optimal model.     

Making decisions in the absence of clear facts

Bennis and O’Toole [Bennis, W.G., O’Toole, J., 2005. How business schools lost their way. Harvard Business Review 83, 96–104] have recently argued that decision makers need guidance in ‘making decisions in the absence of clear facts’. As such, decision makers must be able to resourcefully use whatever limited information is available and advantageously portray its implications. Based on recently published theory which directly addresses this requirement, this paper demonstrates, through a practical example, how decision makers can make systemic decisions in situations characterized by extremely limited information and, furthermore, what form such decisions can take. Evidence is provided, therefore, that operational research can effectively address what appears to be a gap in management training.     

Scoring decisions in the context of economic uncertainty

We consider methods for incorporating forecasts of future economic conditions into acquisition decisions for scored retail credit and loan portfolios. We suppose that a portfolio manager is faced with two possible future economic scenarios, each characterised by a known probability of occurrence and by known performance functions that give expected profit and volume. We suppose further that he must choose in advance the scoring strategy and score cutoffs to optimise performance. We show that, despite the uncertainty of performance induced by economic conditions, every efficient policy consists of a single cutoff, provided the expected profit and volume performance curves in each scenario are concave. If these curves are not concave, efficient operating points can be characterised as cutoffs on a redefined score. In cases in which two scorecards are available, we show that it may be advantageous to randomly choose the scorecard to be employed, and we provide methods for selecting efficient operating points. Discussion is limited to cases with two scorecards and two economic scenarios, but our approach and results generalise to more scorecards and more economic scenarios.     

State subsidy and moral hazard in corporate financing

This paper investigates the impact of state subsidy on the behavior of the entrepreneur under asymmetric information. Several authors formulated concerns about state intervention as it can aggravate moral hazard in corporate financing. In the seminal paper of Holmström and Tirole (Q J Econ 112(3):663–691, 1997) a two-player moral hazard model is presented with an entrepreneur initiating a risky scalable project and a private investor (e.g. bank or venture capitalist) providing outside financing. The novelty of our research is that this basic moral hazard model is extended to the case of positive externalities and to three players by introducing the state subsidizing the project. It is shown that in the optimum, state subsidy does not harm, but improves the incentives of the entrepreneur to make efforts for the success of the project; hence in effect state intervention reduces moral hazard. Consequently, state subsidy increases social welfare which is defined as the sum of private and public net benefits. Also, the exact form of the state subsidy (ex-ante/ex-post, conditional/unconditional, refundable/nonrefundable) is irrelevant in respect of the optimal size and the total welfare effect of the project. Moreover, in case of nonrefundable subsidies state does not crowd out private investors; but on the contrary, by providing additional capital it boosts private financing. These results are mainly due to the special mechanism imbedded in our model by which the private investor is able to transform even the badly designed state subsidies into a success fee which is optimal from the incentive point of view.     

Mathematical programming and the sensitivity of multi-criteria decisions

We report on the current state of a project whose aim is to implement a framework for sensitivity analysis in Multi-Criteria Decision Making (MCDM). The framework is largely based on mathematical programming. Due to the potentially large number and nature of the mathematical programmes, it is far from trivial to provide solutions to all of them in acceptable computing times. The challenge is even greater when we recognize that much decision analysis is performed in the context of decision conferences where any sensitivity analysis needs to be conducted in near real time (preferably) on a PC. We present a parallel processing approach to this challenge and point to some of the difficulties still to be resolved. Preliminary results obtained on a network of transputers are discussed.     

投资项目的期权评价与最优投资规则

本文介绍了不确定环境下的投资项目的期权评价方法和最优投资规则，研究了单期项目和连续投资项目的投资决策问题，探讨了实物期权评价方法与传统的净现值评价方法中最优投资规则的差异，并对影响最优投资规则的差异因素进行了敏感性分析，得出了直观而有实用价值的结论。     

On the impact of suboptimal decisions in the newsvendor model

We study the impact of suboptimal decisions in the newsvendor model, one of the popular inventory models. We establish a lower bound for the deviation of inventory cost from its minimum, when the order quantity is suboptimal. Demonstration of the bound shows the model to be sensitive to suboptimal decisions.     

Bundling decisions in supply chains

Firms often sell products in bundles to extract consumer surplus. While most bundling decisions studied in the literature are geared to integrated firms, we examine a decentralized supply chain where the suppliers retain decision rights. Using a generic distribution of customers’ reservation price we establish equilibrium solutions for three different bundling scenarios in a supply chain, and generate interesting insights for distributions with specific forms. We find that (i) in supply chain bundling the retailer’s margin equals the margin of each independent supplier, and it equals the combined margin when the suppliers are in a coalition, (ii) when the suppliers form a coalition to bundle their products the bundling gain in the supply chain is higher and retail price is lower than when the retailer bundles the products, (iii) the supply chain has more to gain from bundling relative to an integrated firm, (iv) the first-best supply chain bundling remains viable over a larger set of parameter values than those in the case of the integrated firm, (v) supplier led bundling is preferable to separate sales over a wider range of parameter values than if the retailer led the bundling, and (vi) if the reservation prices are uniformly distributed bundling can be profitable when the variable costs are low and valuations of the products are not significantly different from one another. For normally distributed reservation prices, we show that the bundling set is larger and the bundling gain is higher than that for a uniform distribution.     

小心投资美国

作为美国驻华大使,骆家辉比他的前任们获得了更多的关注,＂朴素＂与＂作秀＂之争从媒体蔓延到网络。当人们还在津津乐道双肩包和经济舱的时候,骆家辉却将矛头指向中国的商业环境,＂呼吁＂中国政府停止对金融服务业及外商投资＂广泛的政府干预＂。     

Interactive decisions and potential games

The aim of this contribution is an overview on Potential Games. This class of games is special, in fact we can investigate their properties by a unique function: the potential function. We consider several types of potential games: exact, ordinal, bayesian and hierarchical. Some results are generalized to multicriteria decisions.      

Markov decisions in urban modelling

In urban fire departments, fire companies are dispatched to respond to alarms which occur spatially and temporally in a generally unpredictable way. Also, the time during which one of the responding units is busy on a call, and hence unavailable to other alarms, is itself a random variable. This variability in demand and service time makes it difficult to maintain a balance between the need for effective response to alarms which occur now and those which may arrive in the future. In this paper, we discuss two specific mathematical models, based on work done by the Rand Institute in New York City, for determining not only how many but also which of the available fire-fighting units to deploy to any given alarm. Each is a Markovian decision model in which the conflicting objectives of adequate response to present or future incidents are explicity accounted for. Similar considerations are applicable to other municipal emergency services.