An integrated revenue sharing and quantity discounts contract for coordinating a supply chain dealing with short life-cycle products

This paper develops a combined contract model for coordinating a two stage supply chain where the demand at the retailer’s end is price sensitive and stock dependent. It has been shown that proposed coordination mechanism achieves perfect coordination and win–win situation for both the members of the supply chain. Further, an extensive sensitivity analysis is performed to examine the impact of various parameters on supply chain performance. It has been found that stock dependency factor has positive impact on order quantity and subsequently on supply chain performance. The paper has also made a comparative statics analysis to see the impact of certain parameters on the pricing and replenishment policies of the retailer.     

Multi-period modeling of two-way price commitment under price-dependent demand

This paper examines the use of price-commitment policies in dynamic contracting in multiple-period, finite-time horizons. Two specific forms of price commitment are considered: one on the part of the retailer through a retail-fixed-markup contract and one on the part of the manufacturer through a price-protection contract. Optimal policies for each form of price commitment are analytically derived, as are optimal policies for the traditional price-only and centralized supply chain scenarios that we use as comparisons. We prove that optimal retail price and order size solutions exist in each period under the assumption of non-increasing price-dependent demand. We show that the existence of retailer inventory between periods causes the optimal policies to differ from a static single-period model. Further, we show that a supplier offers a price-protection policy as a signal to the retailer to resolve the gaming that naturally occurs under price-only; this effectively decouples the multi-period dynamic contracting setting into repeated single-period scenarios. However, the resulting behavior can actually inhibit supply chain performance. On the retail commitment side, we find that retail-fixed-markup policies are quite effective in improving supply chain efficiency. We show that such policies can lead to Pareto-improvement over price-only contracts and can even coordinate the supply chain in some situations.     

On the contracts between doctors and rural hospitals

We prove that the set of doctors assigned to a hospital with unfilled positions is the same in all stable allocations for a many-to-one matching model with contracts where all hospitals have q-separable preferences. However, the characteristics of the relationships among these agents may differ from one stable allocation to another.     

Coordination mechanism for capacity reservation by considering production time,production rate and order quantity

In this paper we study the coordination of a dyadic supply chain producing a high-tech product by contracts. The product has a short life cycle and the buyer faces stochastic demands during the selling period. We consider the production time, which causes the inventory costs on supplier’s side. As the supplier builds production capacity in advance, the production rate is limited to the capacity created during the production time. In addition, we take into account the inventory cost and operational cost for the buyer. We examine the model under both full information and partial information updating situations, and propose a coordinating contract for each case. Our analysis includes the study of members’ decisions under both forced and voluntary compliance regimes. Numerical results are presented to provide more insights into the models developed and the mechanisms proposed.     

The physics of time and dimension in the economics of financial control

The provision of the goods and services of a modern economy is controlled by a multiplicity of financial instruments. The basic properties of these instruments are considered here.     

A coordinating contract for transshipment in a two-company supply chain

We study a supply chain with two independent companies producing an identical product and cooperating through transshipment. Previous studies of this chain show that only under certain conditions, linear transshipment prices could be found that induce the companies to choose the first best production quantities. Moreover, even if such transshipment prices do exist, they result in a unique division of total expected profit and thus they cannot accommodate arbitrary divisions of the profit. Using the Generalized Nash Bargaining Solution, we derive coordinating transshipment prices that always give rise to a coordinating contract for the chain. This contract relies on an implicit pricing mechanism.     

Optimal compensation with adverse selection and dynamic actions

We consider continuous-time models in which the agent is paid at the end of the time horizon by the principal, who does not know the agent’s type. The agent dynamically affects either the drift of the underlying output process, or its volatility. The principal’s problem reduces to a calculus of variation problem for the agent’s level of utility. The optimal ratio of marginal utilities is random, via dependence on the underlying output process. When the agent affects the drift only, in the risk- neutral case lower volatility corresponds to the more incentive optimal contract for the smaller range of agents who get rent above the reservation utility. If only the volatility is affected, the optimal contract is necessarily non-incentive, unlike in the first-best case. We also suggest a procedure for finding simple and reasonable contracts, which, however, are not necessarily optimal. Research supported in part by NSF grants DMS 04-03575 and 06-31298. We would like to express our gratitude to participants of the following seminars and conferences for useful comments and suggestions: UCLA (Econ Theory), Caltech (Econ Theory), Columbia (Probability), Princeton (Fin. Engineering), U. Texas at Austin (Math Finance), Banff Workshop on Optim. Problems in Fin. Econ, Kyoto U. (Economics), UC Irvine (Probability), Cornell (Fin. Engineering), Bachelier Seminar. Moreover, we are very grateful to the anonymous referee for helpful suggestions. The remaining errors are the authors’ sole responsibility.     

A model for standardizing human decisions concerning service-contracts management

Increased expectations of today’s customers are causing businesses to offer a variety of warranty contracts for their products. Because of the intense customer contact that takes place during the process of supporting a contract, the planning for contracts has to not only contend with the unpredictable and low demands of the service parts, but must also rely on human decision-making concerning a number of subjective factors. These subjective factors, which are related to the customer, the contract and the contracted product, have seldom been considered in the literature on inventory planning. Moreover, the evaluation of subjective factors often becomes non-standardized and non-coordinated among the geographically dispersed decision-makers of an organization, as was the situation with a Fortune 100 company’s case that motivated this paper. We propose a combination of a heuristic procedure along with the Analytical Hierarchy Process technique that has not been applied in the inventory-planning setting. We also demonstrate how a Web-based information system can be used to standardize the decision process, and discuss the implications of the system on the motivational case. Computational results are also provided to show the effectiveness of the heuristics.     

Competition and contracting in service industries

In service industries with congestion effects, two very different contractual structures are commonly observed, depending on whether or not firms choose to offer a guaranteed service level. We analyze the impact of these choices on market outcomes in oligopolistic industries. Our results highlight how different contractual agreements change the intensity of price competition in service industries. Broadly speaking, we show that competition is intensified when firms choose to offer service level guarantees.