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The referral priority program--an emerging business practice adopted by a growing number of technology companies that manage a waitlist of customers--enables existing customers on the waitlist to gain priority access if they successfully refer new customers to the waitlist. Unlike more commonly used referral reward programs, this novel mechanism does not offer monetary compensation to referring customers, but leverages customers' own disutility of delays to create referral incentives. Despite this appealing feature, our queueing-game-theoretic analysis finds that the effectiveness of such a scheme as a marketing tool for customer acquisition and an operational approach for waitlist management depends crucially on the underlying market conditions, particularly the base market size of spontaneous customers. The referral priority program does not generate referrals when the base market size is either too large or too small. When customers do refer, the program could actually backfire--namely, by reducing the system throughput and customer welfare--if the base market size is intermediately large. This phenomenon occurs because the presence of referred customers severely cannibalizes the demand of spontaneous customers. We also compare the referral priority program with the referral reward program when the service provider optimally sets the admission price. Numerical study suggests that the referral priority program is more profitable than the referral reward program when the base market size is intermediately small. History: Accepted by Serguei Netessine, operations management. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2018.3034. Keywords: referrals * priority queues * system throughput * customer welfare * conversion rate * batch arrivals, 1. Introduction Many technology companies are breaking new ground today as they introduce sign-up waitlists for a limited release of their products to eager customers before a mass-market launch. Notable [...]

Product expiration is an important problem in the consumer packaged goods (CPG) industry costing l%-2% of gross retail sales and eroding industry profits substantially. It can be caused by several factors related to store operations, supply chain practices, and product characteristics. Existing methods used in the industry are inadequate to identify the causes of expiration, leading to inadequate efforts to reduce expiration. Using retail data for 768 SKUs and 10,000 stores (745,638 store-SKU-level observations), as well as upstream supply chain data from a CPG manufacturer, we show the extent to which expiration of products in retail stores is driven by case size, inventory aging in the supply chain, minimum order rules, manufacturers' incentive programs for the sales force, replenishment workload, and many control variables. A counterfactual analysis based on the model shows that our subject manufacturer can reduce expiration by up to $38.82 million per year by implementing four selected initiatives involving case size, supply chain aging, minimum order rules, and sales incentives. Further, targeted initiatives can be designed using combinations of these variables for subsets of products with the highest occurrence of expiration. History: Accepted by Serguei Netessine, operations management. Funding: The authors thank the industry collaborator AlphaCo for providing $60,000 of financial support to this study. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2018.3051. Keywords: retail operations * consumer packaged goods * product expiration. food waste * empirical * perishable inventory * supply chain management * marketing/operations interface * sustainable operations management * zero-inflated models * direct store delivery, 1. Introduction Consumer packaged goods (CPG) products, such as soft drinks, shelf-stable dry food, and health and beauty aids, that turn into waste at retail stores were estimated to cost [...]

A robust finding in the escalation literature, termed as the preference effect, is that involvement in the period 1 initial project assessment decision increases the tendency for decision makers to stick with a losing course of action during the period 2 project reassessment decision. The proposed solution is to bring in a new decision maker in period 2. Across multiple studies, we show that providing period 1 information in real options format increases the tendency for decision makers to view period 2 focal event information as both more negative and more important. Consequently, such decision makers exhibit less escalation in period 2, i.e., exhibit behavior opposite to the preference effect. This suggests that, in real option contexts, not only do we not need to bring in a new decision maker, but also (counterintuitively) it is beneficial to retain the same decision maker in situations where escalation is likely to occur. Keywords: real options * focal events * escalation of commitment * judgment and decision making, 1. Introduction Firms periodically reassess the potential value of a project as new information is obtained. Such reassessment provides the firm the opportunity, but not the obligation, to expand, modify, [...]

We conduct three behavioral laboratory experiments to compare newsvendor order decisions placed directly to order decisions submitted in a decomposed way by soliciting point forecasts, uncertainty estimates, and service-level decisions. Decomposing order decisions in such a way often follows from organizational structure and can lead to performance improvements compared with ordering directly. However, we also demonstrate that if the critical ratio is below 50%, or if the underlying demand uncertainty is too high, task decomposition may not be preferred to direct ordering. Under such conditions, decision makers are prone to set service levels too high or to suffer from excessive random judgment error, which reduces the efficacy of task decomposition. We further demonstrate that if accompanied by decision support in the form of suggested quantities, task decomposition becomes the better-performing approach to newsvendor decision making more generally. Decision support and task decomposition therefore appear as complementary methods to improve decision performance in the newsvendor context. Keywords: behavioral operations * task decomposition . newsvendor * loss function pull * overconfidence * attribute substitution * random judgment error * decision support, 1. Introduction The newsvendor model is a workhorse in the field of operations management (Petruzzi and Dada 2010). The model applies to diverse organizational decisionmaking contexts, such as replenishment decisions, [...]

The use of global suppliers has increased considerably over the last three decades. Operations management theory establishes that global sourcing requires more units of inventory, but since these units are often procured at a lower cost from global suppliers the capital invested in inventory and the consequent financial burden may increase or decrease with global sourcing. This study provides rigorous firm-level empirical evidence that links the global sourcing practices of public U.S. firms and their inventory investments. We process bill of lading manifests (customs forms) to extract information on over half a million sea shipments from global suppliers to U.S. public firms and link this information with quarterly financial data from the Compustat database. We provide stylized facts on the participation of different firms and sectors in global trade. Using a simultaneous equation model, we find that an increase in global sourcing results in an increase in inventory investment. A 10% shift in sourcing from domestic to global suppliers increases the inventory investment by 8.8% for an average firm in our sample. We also find that increasing the number of suppliers can mitigate this increase in inventory investment: for example, going from single to dual sourcing reduces inventory investment by about 11%. We illustrate the use of our estimates to identify the impact of changing global sourcing strategy on inventory investment and operational performance metrics. Keywords: global sourcing; inventory performance; imports; supply diversification; sourcing strategy; empirical analysis; panel data History: Received October 8, 2011; accepted July 19, 2013, by Martin Lariviere, operations management. Published online in Articles in Advance December 23, 2013., 1. Introduction Over the last three decades, several factors have led firms to source globally, including increasing differences in input costs among countries, improved communication technologies, and geographical skill specialization [...]

Consumers often purchase goods that are 'hard to find' to conspicuously display their exclusivity and social status. Firms that produce such conspicuously consumed goods such as designer apparel, fashion goods, jewelry, etc., often face challenges in making optimal pricing and production decisions. Such firms are confronted with precipitous trade-off between high sales volume and high margins, because of the highly uncertain market demand, strategic consumer behavior, and the display of conspicuous consumption. In this paper, we propose a model that addresses pricing and production decisions for a firm, using the rational expectations framework. We show that, in equilibrium, firms may offer high availability of goods despite the presence of conspicuous consumption. We show that scarcity strategies are harder to adopt as demand variability increases, and we provide conditions under which scarcity strategies could be successfully adopted to improve profits. Finally, to credibly commit to scarcity strategy, we show that firms can adopt sourcing strategies, such as sourcing from an expensive production location/supplier or using expensive raw materials. Key words: strategic customer behavior; game theory; conspicuous consumption; pricing; scarcity; sourcing History: Received February 25, 2010; accepted August 31, 2011, by Preyas Desai and Pradeep Chintagunta, marketing. Published online in Articles in Advance July 30, 2012., 1. Introduction Consumers looking to signal their uniqueness and exclusivity have often expressed themselves by consuming goods prominently to display their status. Firms that design and sell luxury products or [...]

This paper provides a novel explanation for the use of supply chain intermediaries. We find that even in 1 the absence of the well-known transactional and informational advantages of mediation, intermediaries improve supply chain performance. In particular, intermediaries facilitate responsive adaptation of the buyers' supplier base to their changing needs while simultaneously ensuring that suppliers behave as if they had long-term sourcing commitments from buying firms. In the face of changing buyer needs, an intermediary that sources on behalf of multiple buyers can responsively change the composition of future business committed to a supplier such that a sufficient level of business comes from the buyer(s) that most prefer this supplier. On the other hand, direct buyers that source only for themselves must provide all their committed business to a supplier from their own sourcing needs, even if they no longer prefer this supplier. Unlike existing theories of intermediation, our theory better explains the observed phenomenon that although transactional barriers and information asymmetries have steadily decreased, the use of intermediaries has soared, even among large companies such as Walmart. Key words: global sourcing; intermediaries; supply chain relationships; relational contracts; flexibility; Li & Fung; repeated games History: Received October 13, 2010; accepted December 13, 2011, by Martin Lariviere, operations management. Published online in Articles in Advance May 18, 2012., 1. Introduction This paper is inspired by the phenomenal growth of supply chain intermediaries that source products or services on behalf of other firms. These often completely take over the [...]

In this paper we conduct an empirical investigation of a large-scale combinatorial auction (CA)--the Chilean auction for school meals in which the government procures half a billion dollars worth of meal services every year. Our empirical study is motivated by two fundamental aspects in the design of CAs: (1) which packages should bidders be allowed to bid on and (2) diversifying the supplier base to promote competition. We use bidding data to uncover important aspects of the firms' cost structure and their strategic behavior, both of which are not directly observed by the auctioneer; these estimates inform the auction design. Our results indicate that package bidding that allows firms to express their cost synergies due to economies of scale and density seems appropriate. However, we also found evidence that firms can take advantage of this flexibility by discounting package bids for strategic reasons and not driven by cost synergies. Because this behavior can lead to inefficiencies, it may be worth evaluating whether to prohibit certain specific combinations in the bidding process. Our results also suggest that market share restrictions and running sequential auctions seem to promote competition in the long run, without significantly increasing the short-run cost for the government due to unrealized cost synergies. Our results highlight that the simultaneous consideration of the firms' operational cost structure and their strategic behavior is key to the successful design of a CA. More broadly, our paper is the first to provide an econometric study of a large-scale CA, providing novel and substantive insights regarding bidding behavior in this type of auction. Key words: combinatorial auctions; procurement; auction design; empirical; public sector applications History: Received April 29, 2010; accepted October 20, 2011, by Martin Lariviere, operations management. Published online in Articles in Advance April 18, 2012., 1. Introduction Auctions are increasingly becoming a common mechanism for supply chain procurement. Corporations and governments use auctions to procure billions of dollars in inputs and services (Rothkopf and Whinston [...]

We consider a firm that procures and distributes a commodity from spot and forward markets under randomly fluctuating prices; the commodity is distributed downstream to a set of nonhomogeneous retailers to satisfy random demand. We formulate a model that allows one to compute approximate, but near optimal procurement and distribution policies for this system, and we explore the value of the commodity's market in providing managers with (a) additional flexibility in procurement and (b) information on price dynamics generated through the trading of futures contracts. Our results indicate that the presence of the commodity market and the information that it conveys may lead to significant reductions in inventory-related costs; however, to obtain these benefits, both the spot procurement flexibility and the term structure of prices generated by the commodity market must be incorporated in the formulation of the operating policy. Managerial insights on the procurement strategy as a function of variability in prices and demand are also discussed. Key words: commodity procurement; commodity markets; marginal convenience yield; multiechelon inventory management History: Received July 31, 2007; accepted April 29, 2011, by John Birge, focused issue editor. Published online in Articles in Advance October 28, 2011., 1. Introduction We consider a firm that procures a commodity from spot and forward markets at a central location and distributes it downstream to a set of nonidentical retailers. Procurement [...]

We study the impact of financial innovations on real investment decisions within the framework of an incomplete market economy comprised of firms, investors, and an intermediary. The firms face unique investment opportunities that arise in their business operations and can be undertaken at given reservation prices. The cash flows thus generated are not spanned by the securities traded in the financial market and cannot be valued uniquely. The intermediary purchases claims against these cash flows, pools them together, and sells tranches of primary or secondary securities to the investors. We derive necessary and sufficient conditions under which projects are undertaken due to the intermediary's actions, and firms are amenable to the pool proposed by the intermediary, compared to the no-investment option or the option of forming alternative pools. We also determine the structure of the new securities created by the intermediary and identify how it exploits the arbitrage opportunities available in the market. Our results have implications for valuation of real investments, synergies among them, and their financing mechanisms. We illustrate these implications using an example of inventory decisions under random demand. Key words: incomplete markets; securitization; financial innovation; real options; project financing History: Received August 15, 2007; accepted October 28, 2009, by John Birge, focused issue editor. Published online in Articles in Advance March 23, 2010., 1. Introduction In the standard paradigm of financial economics, the value of a project is derived from capital market prices based on the twin assumptions that the cash flows from [...]

This paper models the generation, circulation, and completion of new ideas, showing how markets and innovative firms complement each other in a symbiotic relationship. Novel ideas are initially incomplete and require further insight before yielding a valuable innovation. Finding the complementary piece requires ideas to circulate, which creates appropriation risks. Circulation of ideas in markets ensures efficient completion, but because ideas can be appropriated, market entrepreneurs underinvest in idea generation. Firms can establish boundaries that guarantee safe circulation of internal ideas, but because firms need to limit idea circulation, they may fail to achieve completion. Spin-offs allow firms to benefit from the market's strength at idea completion, whereas markets benefit from firms' strength at generating new ideas. The model predicts diverse organizational forms (internal ventures, spin-offs, and start-ups) coexisting and mutually reinforcing each other. The analysis provides new insights into the structure of innovation-driven clusters such as Silicon Valley. Key words: innovation; market for ideas; start-ups; spin-offs History: Received November 7, 2010; accepted April 27, 2011, by Bruno Cassiman, business strategy Published online in Articles in Advance September 2, 2011., 1. Introduction Schumpeter (1926, 1942) thought of innovations as novel combinations of existing factors. The novelty often pertains to boundary spanning insights that reconfigure existing technologies and customer needs (Weitzman [...]

We examine how firms can create word-of-mouth peer influence and social contagion by designing viral features into their products and marketing campaigns. To econometrically identify the effectiveness of different viral features in creating social contagion, we designed and conducted a randomized field experiment involving the 1.4 million friends of 9,687 experimental users on Facebook.com. We find that viral features generate econometrically identifiable peer influence and social contagion effects. More surprisingly, we find that passive-broadcast viral features generate a 246% increase in peer influence and social contagion, whereas adding active-personalized viral features generate only an additional 98% increase. Although active-personalized viral messages are more effective in encouraging adoption per message and are correlated with more user engagement and sustained product use, passive-broadcast messaging is used more often, generating more total peer adoption in the network. Our work provides a model for how randomized trials can identify peer influence in social networks. Key words: peer influence; social contagion; social networks; viral marketing; viral product design; information systems; randomized experiment History: Received February 28, 2010; accepted March 31, 2011, by Pradeep Chintagunta and Preyas Desai, special issue editors. Published online in Articles in Advance August 4, 2011., 1. Introduction It is widely believed that social contagion and word-of-mouth (WOM) 'buzz' about products drive product adoption and sales, and firms increasingly rely on 'network' and 'viral' marketing strategies [...]

The existence of mandatory emission trading schemes in Europe and the United States, and the increased liquidity of trading on futures contracts on COz emissions allowances, led naturally to the next step in the development of these markets: These futures contracts are now used as underliers for a vibrant derivative market. In this paper, we give a rigorous analysis of a simple risk-neutral reduced-form model for allowance futures prices, demonstrate its calibration to historical data, and show how to price European call options written on these contracts. Key words: emission derivatives; emissions markets; cap-and-trade schemes; environmental finance History: Received April 25, 2009; accepted March 7, 2011, by Haitao Li, guest editor, finance. Published online in Articles in Advance June 20, 2011., 1. Introduction Global warming and environmental problems continue to challenge policy makers. In part because of the success of the U.S. Acid Rain Program, cap-and-trade systems are now considered to [...]

We address the empirical implementation of the static asset allocation problem by developing a forward-looking approach that uses information from market option prices. To this end, we extract constant maturity S & P 500 implied distributions and transform them to the corresponding risk-adjusted ones. Then we form optimal portfolios consisting of a risky and a risk-free asset and evaluate their out-of-sample performance. We find that the use of risk-adjusted implied distributions times the market and makes the investor better off than if she uses historical returns' distributions to calculate her optimal strategy. The results hold under a number of evaluation metrics and utility functions and carry through even when transaction costs are taken into account. Not surprisingly, the reported market timing ability deteriorated during the recent subprime crisis. An extension of the approach to a dynamic asset allocation setting is also presented. Key words: asset allocation; option-implied distributions; market timing; performance evaluation; portfolio choice; risk aversion History: Received June 19, 2009; accepted February 28, 2011, by Wei Xiong, finance. Published online in Articles in Advance May 16, 2011., 1. Introduction The standard static optimal portfolio selection problem boils down to maximizing the expected utility derived by the one-period-ahead wealth. Maximization of expected utility can be carried out in [...]

A fast fashion system combines quick response production capabilities with enhanced product design capabilities to both design 'hot' products that capture the latest consumer trends and exploit minimal production lead times to match supply with uncertain demand. We develop a model of such a system and compare its performance to three alternative systems: quick-response-only systems, enhanced-design-only systems, and traditional systems (which lack both enhanced design and quick response capabilities). In particular, we focus on the impact of each of the four systems on 'strategic' or forward-looking consumer purchasing behavior, i.e., the intentional delay in purchasing an item at the full price to obtain it during an end-of-season clearance. We find that enhanced design helps to mitigate strategic behavior by offering consumers a product they value more, making them less willing to risk waiting for a clearance sale and possibly experiencing a stockout. Quick response mitigates strategic behavior through a different mechanism: by better matching supply to demand, it reduces the chance of a clearance sale. Most importantly, we find that although it is possible for quick response and enhanced design to be either complements or substitutes, the complementarity effect tends to dominate. Hence, when both quick response and enhanced design are combined in a fast fashion system, the firm typically enjoys a greater incremental increase in profit than the sum of the increases resulting from employing either system in isolation. Furthermore, complementarity is strongest when customers are very strategic. We conclude that fast fashion systems can be of significant value, particularly when consumers exhibit strategic behavior. Key words: strategic consumer behavior; quick response; fast fashion; game theory History: Received June 22, 2009; accepted December 13, 2010, by Yossi Aviv, operations management. Published online in Articles in Advance March 4, 2011., 1. Introduction Firms in the fashion apparel industry--such as Zara, H&M, and Benetton--have increasingly embraced the philosophy of 'fast fashion' retailing (Passariello 2008, Rohwedder and Johnson 2008). Generally speaking, a [...]

Cadaveric liver transplantation is the only viable therapy for end-stage liver disease patients without a living donor. However, this type of transplantation is hindered in the United States by donor scarcity and rapid viability decay. Given these difficulties, the current U.S. liver allocation policy balances allocation likelihood and geographic proximity by allocating cadaveric livers hierarchically. We consider the problem of maximizing the efficiency of intraregional transplants through the redesign of liver allocation regions. We formulate the problem as a set partitioning problem that clusters organ procurement organizations into regions. We develop an estimate of viability-adjusted intraregional transplants to capture the trade-off between large and small regions. We utilize branch and price because the set partitioning formulation includes too many potential regions to handle explicitly. We formulate the pricing problem as a mixed-integer program and design a geographic-decomposition heuristic to generate promising columns quickly. Because the optimal solution depends on the design of geographic decomposition, we develop an iterative procedure that integrates branch and price with local search to alleviate this dependency. Finally, we present computational studies that show the benefit of region redesign and the efficacy of our solution approach. Our carefully calibrated test instances can be solved within a reasonable amount of time, and the resulting region designs yield a noticeable improvement over the current configuration. Key words: set partitioning; branch and price; column generation; clustering; organ allocation History: Received October 2, 2007; accepted July 31, 2010, by Linda V. Green, Public sector applications. Published online in Articles in Advance October 29, 2010., 1. Introduction End-stage liver disease (ESLD), such as hepatitis and cirrhosis, is the 12th-leading cause of death in the United States, accounting for nearly 30,000 deaths in 2006 alone (Heron [...]

Conventional wisdom suggests that investors' independent biases should cancel each other out and have little impact on equilibrium at the aggregate level. In contrast to this intuition, this paper analyzes [...]

Several studies have examined how the ISO 9001 quality management systems standard predicts changes in organizational outcomes such as profits. This is the first large-scale study to explore how employee outcomes such as employment, earnings, and health and safety change when employers adopt ISO 9001. We analyzed a matched sample of nearly 1,000 companies in California. ISO 9001 adopters subsequently had far lower organizational death rates than a matched control group of nonadopters. Among surviving employers, ISO adopters had higher growth rates for sales, employment, payroll, and average annual earnings. Injury rates declined slightly for ISO 9001 adopters, although total injury costs did not. These results have implications for organizational theory, managers, and public policy. Key words: ISO 9001; quality management; standards; occupational health and safety; wages; labor; empirical; California History: Received August 18, 2008; accepted January 17, 2010, by Aleda Roth, operations and supply chain management. Published online in Articles in Advance April 9, 2010., 1. Introduction Nearly 900,000 organizations in 170 countries have adopted the ISO 9001 quality management system standard (International Organization for Standardization 2006). This is a remarkable figure given the lack [...]

Companies in a variety of industries (e.g., airlines, hotels, theaters) often use last-minute sales to dispose of unsold capacity. Although this may generate incremental revenues in the short term, the long-term consequences of such a strategy are not immediately obvious: More discounted last-minute tickets may lead to more consumers anticipating the discount and delaying the purchase rather than buying at the regular (higher) prices, hence potentially reducing revenues for the company. To mitigate such behavior, many service providers have turned to opaque intermediaries, such as Hotwire.com, that hide many descriptive attributes of the service (e.g., departure times for airline tickets) so that the buyer cannot fully predict the ultimate service provider. Using a stylized economic model, this paper attempts to explain and compare the benefits of last-minute sales directly to consumers versus through an opaque intermediary. We utilize the notion of rational expectations to model consumer purchasing decisions: Consumers make early purchase decisions based on expectations regarding future availability, and these expectations are correct in equilibrium. We show that direct last-minute sales are preferred over selling through an opaque intermediary when consumer valuations for travel are high or there is little service differentiation between competing service providers, or both; otherwise, opaque selling dominates. Moreover, contrary to the usual belief that such sales are purely mechanisms for disposal of unused capacity, we show that opaque selling becomes more preferred over direct last-minute selling as the probability of having high demand increases. When firms randomize between opaque selling and last-minute selling strategies, they are increasingly likely to choose the opaque selling strategy as the probability of high demand increases. When firms with unequal capacities use the opaque selling strategy, consumers know more clearly where the opaque ticket is from and the efficacy of opaque selling decreases. Key words: distribution channels; competition; revenue management; strategic consumer behavior; rational expectations History: Received March 18, 2008; accepted November 6, 2009, by Ananth Iyer, operations and supply chain management. Published online in Articles in Advance February 12, 2010., 1. Introduction Firms in the travel industry (e.g., airlines, hotels, and car rentals) face the problem of uncertain demand for their services. Although these firms typically begin by selling regularly [...]

This paper studies a monopolist firm selling a fixed capacity. The firm sets a price before demand uncertainty is resolved. Speculators may enter the market purely with the intention of resale, which can be profitable if demand turns out to be high. Consumers may strategically choose when to purchase, and they may also choose to purchase from the firm or from the speculators. We characterize equilibrium prices and profits and analyze the long-run capacity decisions of the firm. There are three major findings. First, the presence of speculators increases the firm's expected profits even though the resale market competes with the firm. Second, by facilitating resale, the firm can mimic dynamic pricing outcomes and enjoy the associated benefits while charging a fixed price. Third, speculative behavior may generate incentives for the seller to artificially restrict supply, and thus may lead to lower capacity investments. We also explore several model extensions that highlight the robustness of our results. Key words: dynamic pricing; speculation; resale; strategic customer behavior; competition History: Received January 7, 2009; accepted July 21, 2009, by Martin Lariviere, operations management. Published online in Articles in Advance September 28, 2009., 1. Introduction Many items are available only in limited quantities. Examples include tickets to a Broadway show, seats at a basketball match, and 'hot' electronic gadgets such as Apple's iPhone [...]

We propose that ambiguity aversion, as introduced in the literature on decision making under uncertainty, drives a preference for established brands in multiattribute choices among branded alternatives. Established brands are those for which belief in quality is held with greater confidence, even if specific attributes might be inferior to those of competing, less-established brands. In five experiments, we examine the role of ambiguity aversion in the preference for dominated, established brands. We first show a correlation between ambiguity aversion (revealed through choices among monetary lotteries) and the preference for established brands. We then show that the preference for established brands is enhanced when ambiguity aversion is made more salient in unrelated preceding lottery choices. Thus, ambiguity aversion carries across choices. In addition, ambiguity aversion and the preference for established brands are both enhanced when subjects anticipate that others will evaluate their lottery choices. Finally, ambiguous information about brand attributes tends to increase the preference for established brands. Key words: ambiguity; brand preference; decisions under uncertainty; multiattribute choice History: Received January 8, 2009; accepted July 3, 2009, by Peter Wakker, decision analysis. Published online in Articles in Advance October 16, 2009., Introduction An important finding in the literature on decisionmaking under uncertainty is the preference for gambles with known rather than unknown (ambiguous) probabilities of winning. For example, people betting on [...]

An important challenge in multiattribute decision analysis is the choice of an appropriate functional form for the utility function. We show that if a decision maker prefers more of any attribute to less and prefers to combine good lotteries with bad, as opposed to combining good with good and bad with bad, her utility function should be a weighted average (a mixture) of multiattribute exponential utilities ("mixex utility"). In the single-attribute case, mixex utility satisfies properties typically thought to be desirable and encompasses most utility functions commonly used in decision analysis. In the multiattribute case, mixex utility implies aversion to any multivariate risk. Risk aversion with respect to any attribute decreases as that attribute increases. Under certain restrictions, such risk aversion also decreases as any other attribute increases, and a multivariate one-switch property is satisfied. One of the strengths of mixex utility is its ability to represent cases where utility independence does not hold, but mixex utility can be consistent with mutual utility independence and take on a multilinear form. An example illustrates the fitting of mixex utility to preference assessments. Key words: multiattribute utility; combining good with bad; mixex utility; risk aversion; multivariate one-switch property; sumex utility; multivariate Laplace transform History: Received November 17, 2008; accepted August 2, 2009, by David E. Bell, decision analysis. Published online in Articles in Advance October 16, 2009., 1. Introduction A group of senior managers has worked hard to define the important attributes of interest in a complex decision-making problem. One of the managers, who once took a [...]

We analyze the duration and outcomes of patent examination at the European Patent Office utilizing an unusually rich data set covering a random sample of 215,265 applications filed between 1982 and 1998. In our empirical analysis, we distinguish between three groups of determinants: applicant characteristics, indicators of patent quality and value, and determinants that affect the complexity of the examination task. The results from an accelerated failure time model indicate that more controversial claims lead to slower grants but faster withdrawals, whereas well-documented applications are approved faster and withdrawn more slowly. We find strong evidence that applicants accelerate grant proceedings for their most valuable patents, but that they also prolong the battle for such patents if a withdrawal or refusal is imminent. This paper develops implications of these results for managerial decision making in research and development and innovation management. Key words: patents; patent examination; survival analysis; patent citations; European Patent Office History: Received October 30, 2007; accepted June 30, 2009, by Christoph Loch, R&D and product development. Published online in Article? in Advance September 28, 2009., 1. Introduction The last three decades have seen an unprecedented growth in patent filings at all major patent offices of the world. Patents are in high demand, because their tactical [...]

We characterize the equilibrium behavior in a broad class of competition models in which the competing firms' market shares are given by an attraction model, and the aggregate sales in the industry depend on the aggregate attraction value according to a general function. Each firm's revenues and costs are proportional with its expected sales volume, with a cost rate that depends on the firm's chosen attraction value according to an arbitrary increasing function. Whereas most existing competition papers with attraction models can be viewed as special cases of this general model, we apply our general results to a new set of quality competition models. Here an industry has N suppliers of a given product, who compete for the business of one or more buyers. Each of the suppliers encounters an uncertain yield factor, with a given general yield distribution. The buyers face uncertain demands over the course of a given sales season. The suppliers compete by selecting key characteristics of their yield distributions, either their means, their standard deviations, or both. These choices have implications for their per-unit cost rates. Key words: inventory production; uncertainty; games-group decisions; stochastic models History: Received October 12, 2007; accepted April 25, 2009, by Paul H. Zipkin, operations and supply chain management. Published online in Articles in Advance October 16, 2009., 1. Introduction and Summary Starting with a seminal paper by Friedman (1958), there is a well-established tradition in the economics, marketing, and operations literature to model competition in oligopolies by [...]

The coordination of supply chains by means of contracting mechanisms has been extensively explored theoretically but not tested empirically. We investigate the performance of three commonly studied supply chain contracting mechanisms: the wholesale price contract, the buyback contract, and the revenue-sharing contract. The simplified setting we consider utilizes a two-echelon supply chain in which the retailer faces the newsvendor problem, the supplier has no capacity constraints, and delivery occurs instantaneously. We compare the three mechanisms in a laboratory setting using a novel design that fully controls for strategic interactions between the retailer and the supplier. Results indicate that although the buyback and revenue-sharing contracts improve supply chain efficiency relative to the wholesale price contract, the improvement is smaller than the theory predicts. We also find that although the buyback and revenue-sharing contracts are mathematically equivalent, they do not generally result in equivalent supply chain performance. Key words: supply chain contracts; experimental economics History: Received June 12, 2006; accepted July 28, 2009, by Aleda Roth, operations and supply chain management. Published online in Articles in Advance October 16, 2009., 1. Introduction and Motivation Previous studies have shown a great deal of interest in the analysis of contracting mechanisms that can be used to coordinate supply chains. The alignment of [...]

Strategic models of auditor-inspectee interaction have neglected implementation details in multiple-inspectee settings. With multiple inspectees, the target audit probability derived from the standard analysis can be implemented with sampling plans differing in the budgets committed to support them. Overly committed audit budgets tie up unneeded resources that could have been allocated for better uses. This paper studies the minimum committed budget required to implement a target audit probability when (i) the audit sample can be contingent on 'red flags' due to signals of inspectees' private information (e.g., from self-reporting) and (ii) the number of inspectees is large. It proposes an audit rule called bounded simple random sampling (SRS), which is shown to require no more committed budget to support than two other rules naturally generalized from the one-to-one analysis. When the number of inspectees is large enough, bounded SRS is nearly as good as any efficient audit rule, which demands the lowest committed budget necessary to implement the target audit probability. The results offer insights on how audit sampling plans may be formulated to reduce inefficiency and what budget usage ratios should be expected accordingly. Key words: audit sampling plan; audit budget; tax audit; tax compliance; tax evasion; inspection game; appropriation and rescission History: Received June 13, 2007; accepted July 30, 2009, by Stefan Reichelstein, accounting. Published online in Articles in Advance October 16, 2009., 1. Introduction Private-sector organizations often begin a period of operations with the allocation of a budget to each business unit. The budget committed to a unit limits its activities and [...]

The phenomenon of sponsored search advertising--where advertisers pay a fee to Internet search engines to be displayed alongside organic (nonsponsored) Web search results--is gaining ground as the largest source of revenues for search engines. Using a unique six-month panel data set of several hundred keywords collected from a large nationwide retailer that advertises on Google, we empirically model the relationship between different sponsored search metrics such as click-through rates, conversion rates, cost per click, and ranking of advertisements. Our paper proposes a novel framework to better understand the factors that drive differences in these metrics. We use a hierarchical Bayesian modeling framework and estimate the model using Markov Chain Monte Carlo methods. Using a simultaneous equations model, we quantify the relationship between various keyword characteristics, position of the advertisement, and the landing page, quality score on consumer search and purchase behavior as well as on advertiser's cost per click and the search engine's ranking decision. Specifically, we find that the monetary value of a click is not uniform across all positions because conversion rates are highest at the top and decrease with rank as one goes down the search engine results page. Though search engines take into account the current period's bid as well as prior click-through rates before deciding the final rank of an advertisement in the current period, the current bid has a larger effect than prior click-through rates. We also find that an increase in landing page quality scores is associated with an increase in conversion rates and a decrease in advertiser's cost per click. Furthermore, our analysis shows that keywords that have more prominent positions on the search engine results page, and thus experience higher click-through or conversion rates, are not necessarily the most profitable ones--profits are often higher at the middle positions than at the top or the bottom ones. Besides providing managerial insights into search engine advertising, these results shed light on some key assumptions made in the theoretical modeling literature in sponsored search. Key words: online advertising; search engines; hierarchical Bayesian modeling; paid search; click-through rates; conversion rates; keyword ranking; cost per click; electronic commerce; Internet monetization History: Received August 30, 2007; accepted April 14, 2009, by Jagmohan S. Raju marketing. Published online in Articles in Advance July 27, 2009., 1. Introduction The Internet has brought about a fundamental change in the way users generate and obtain information, thereby facilitating a paradigm shift in consumer search and purchase patterns. In [...]

We study the following question: How does competition influence the inventory holdings of General Motors' dealerships operating in isolated U.S. markets? We wish to disentangle two mechanisms by which local competition influences a dealer's inventory: (1) the entry or exit of a competitor can change a retailer's demand (a sales effect); and (2) the entry or exit of a competitor can change the amount of buffer stock a retailer holds, which influences the probability that a consumer finds a desired product in stock (a service-level effect). Theory is clear on the sales effect--an increase in sales leads to an increase in inventory (albeit a less than proportional increase). However, theoretical models of inventory competition are ambiguous on the expected sign of the service-level effect. Via a Web crawler, we obtained data on inventory and sales for more than 200 dealerships over a six-month period. Using cross-sectional variation, we estimated the effect of the number and type of local competitors on inventory holdings. We used several instrumental variables to control for the endogeneity of market entry decisions. Our results suggest that the service-level effect is strong, nonlinear, and positive. Hence, we observe that dealers carry more inventory (controlling for sales) when they face additional competition. Key words: inventory competition; empirical; entry; supply chain management; automobile industry History: Received June 7, 2007; accepted May 11, 2009, by Aleda Roth, operations and supply chain management. Published online in Articles in Advance July 10, 2009., 1. Introduction How does local competition influence a retailer's inventory holdings? Although an active theoretical literature has recently emerged to explore this question, the question has so far received no [...]

For empirical work in the resource-based view of the firm, characterizing the resources that are responsible for firm growth is difficult because valuable resources are often tacit, ambiguous, or difficult to identify. This is a particular problem for empirical assessments that rely upon the concept of relatedness between resources to characterize the direction of growth of the firm. We tackle the problem for the general case by developing a general interindustry relatedness index. The index harnesses the relatedness information embedded in the multiproduct organization decisions of every diversified firm in the U.S. manufacturing economy. The index is general in that it can be used across industry contexts without requiring explicit identification of resources and it provides a percentile relatedness rank for every possible pair of four-digit Standard Industrial Classification manufacturing industries. The general index is tested for predictive validity and found to perform as expected. Applications of the index in strategy research are suggested. Key words: relatedness; resource-based view; corporate strategy History: Received January 10, 2007; accepted April 13, 2009, by Pankaj Ghemawat, business strategy. Published online in Articles in Advance July 10, 2009., If there are profitable opportunities for increased production anywhere in the economy they will provide for some firm an external inducement to expand. But this alone tells us nothing about [...]

The first step in transforming strategy from a hopeful statement about the future into an operational reality is to allocate resources to innovation and new product development (NPD) programs in a portfolio. Resource allocation and NPD portfolio decisions often span multiple levels of the organization's hierarchy, leading to questions about how much authority to bestow on managers and how to structure incentives for NPD. In this study, we explore how funding authority and incentives affect a manager's allocation of resources between existing product improvement (relatively incremental projects) and new product development (more radical projects). Funding may be either fixed or variable depending on the extent to which the manager has the authority to use revenue derived from existing product sales to fund NPD efforts. We find that the use of variable funding drives higher effort toward improving existing products and developing new products. However, variable funding has a subtle side effect: it induces the manager to focus on existing product improvement to a greater degree than new product development, and the relative balance in the NPD portfolio shifts toward incremental innovation. In addition, we highlight a substitution effect between explicit incentives (compensation parameters) and implicit incentives (career concerns). Explicit incentives are reduced as career concerns become more salient. Key words: innovation; new product development; authority; incentives; resource allocation; portfolio History: Received November 28, 2006; accepted March 22, 2009, by Christian Terwiesch, guest department editor, technological innovation, product development, and entrepreneurship. Published online in Articles in Advance July 10, 2009., 1. Introduction The question of which innovation programs to pursue is critical to a firm's success and is often cited as a key competitive dimension (Roussel et al. 1991, Wheelwright [...]

We find that experienced poker players typically change their style of play after winning or losing a big pot--most notably, playing less cautiously after a big loss, evidently hoping for lucky cards that will erase their loss. This finding is consistent with Kahneman and Tversky's (Kahneman, D., A. Tversky. 1979. Prospect theory: An analysis of decision under risk. Econometrica 47(2) 263-292) break-even hypothesis and suggests that when investors incur a large loss, it might be time to take a vacation or be monitored closely. Key words: prospect theory; break-even hypothesis; risk; investment History: Received July 5, 2008; accepted April 29, 2009, by David A. Hsieh, finance. Published online in Articles in Advance July 10, 2009., Introduction A substantial body of evidence indicates that decisions are shaped by a variety of cognitive biases. Hirshleifer (2001) gives an extensive literature survey of psychological influences on investor decisions. [...]

Large-scale service systems, where many servers respond to high demand, are appealing because they can provide great economy of scale, producing a high quality of service with high efficiency. Customer waiting times can be short, with a majority of customers served immediately upon arrival, while server utilizations remain close to 100%. However, we show that this confluence of quality and efficiency is not achieved without risk, because there can be severe congestion if the system does not operate as planned. In particular, we show that the large scale makes the system more vulnerable to service interruptions when (i) most customers remain waiting until they can be served, and (ii) when many servers are unable to function during the interruption, as may occur with a system-wide computer failure. Increasing scale leads to higher server utilizations, which in turn leads to longer recovery times from service interruptions and worse performance during such events. We quantify the impact of service interruptions with increasing scale by introducing and analyzing approximating deterministic fluid models. We also show that these fluid models can be obtained from many-server heavy-traffic limits. Key words: service interruptions; service systems; economy of scale; call centers; many-server queues; deterministic fluid models; heavy-traffic limits; rare-event simulation History: Received May 4, 2008; accepted April 19, 2009, by Paul H. Zipkin, operations and supply chain management. Published online in Articles in Advance July 10, 2009., 1. Introduction A clear trend in call centers and many other service systems is increasing scale. Whereas, formerly, a large call center might employ hundreds of agents, today a large [...]

Much of prior work in the area of service operations management has assumed service rates to be exogenous to the level of load on the system. Using operational data from patient transport services and cardiothoracic surgery--two vastly different health-care delivery services--we show that the processing speed of service workers is influenced by the system load. We find that workers accelerate the service rate as load increases. In particular, a 10% increase in load reduces length of stay by two days for cardiothoracic surgery patients, whereas a 20% increase in the load for patient transporters reduces the transport time by 30 seconds. Moreover, we show that such acceleration may not be sustainable. Long periods of increased load (overwork) have the effect of decreasing the service rate. In cardiothoracic surgery, an increase in overwork by 1% increases length of stay by six hours. Consistent with prior studies in the medical literature, we also find that overwork is associated with a reduction in quality of care in cardiothoracic surgery--an increase in overwork by 10% is associated with an increase in likelihood of mortality by 2%. We also find that load is associated with an early discharge of patients, which is in turn correlated with a small increase in mortality rate. Key words: health-care operations; productivity; service operations; optimal control of queues; quality History: Received April 24, 2007; accepted April 3, 2009, by Linda V. Green, public sector applications. Published online in Articles in Advance July 6, 2009., 1. Introduction Over the last decade, most hospitals have witnessed a substantial increase in fixed costs, largely reflecting growing expenses for new technologies and liability insurance. Over the same period, [...]

We address the mechanism design problem for a market with multiple buyers and sellers. Each buyer demands some bundle(s) of various commodities, and each seller supplies multiple units of one commodity. To design truthful double-auction mechanisms, we propose a novel 'padding' method that intentionally creates imbalances between the supply availability and demand requirement by introducing a phantom buyer with unlimited budget. To the best of our knowledge, this 'padding' method leads to a class of mechanisms that are the first strategy-proof, individually rational, budget-balanced, and asymptotically efficient mechanisms for the specified exchange environment. Furthermore, these mechanisms dominate known truthful bundle/single-unit mechanisms with higher efficiency, lower buying prices, and higher selling prices. Key words: strategy proofness; auction design; bidding with synergies; resource allocation. History: Received August 21, 2008; accepted February 25, 2009, by Ramayya Krishnan, information systems. Published online in Articles in Advance May 7, 2009., 1. Introduction Recent years have seen a growing number of transactions in Internet marketplaces, and this has generated great interest in online auctions in the academic research communities (Pinker et [...]

Name-your-own-price (NYOP) retailers, such as Priceline, offer an alternative distribution channel for service providers in the travel industry such as airlines, hotels, and car rental companies. Our research employs an analytical model to identify and understand key trade-offs driving the decision by a service provider to employ an NYOP channel, assuming that such a channel is available. This decision requires the existence of forces that counteract the adverse consequences of cannibalization of sales through traditional posted-price channels. Our analysis provides some insight into these forces. Contracting with the NYOP retailer facilitates market segmentation and price discrimination, and allows for disposal of excess capacity after meeting business travel demand. However, the cost of this flexibility is that the service provider can no longer credibly precommit to maintaining high prices when there is unsold capacity. Also, when contracting with an independent retailer, the service provider is unable to extract the entire revenue generated from NYOP consumers. A key insight from our model is that the rationale for contracting with an NYOP retailer is driven by the uncertainty in business travel demand, not the expectation of excess capacity. Indeed, all else equal, the larger the capacity, the less likely it is that contracting with an NYOP retailer is the right decision on the part of the service provider. Key words: pricing; name-your-own-price channel; bidding; Bayesian Nash equilibrium; e-commerce History: Received October 28, 2006; accepted February 7, 2009, by Jagmohan S. Raju, marketing. Published online in Articles in Advance April 23, 2009., 1. Introduction 1.1. Motivation and Research Questions In recent years, name-your-own-price (NYOP) retailers, exemplified by Priceline®, have emerged as an online alternative to other traditional channels through which service providers [...]

This article makes a bridge between the theory of optimal auditing and the scoring methodology in an asymmetric information setting. Our application is meant for insurance claims fraud, but it can be applied to many other activities that use the scoring approach. Fraud signals are classified based on the degree to which they reveal an increasing probability of fraud. We show that the optimal auditing strategy takes the form of a 'red flags strategy,' which consists in referring claims to a special investigative unit (SIU) when certain fraud indicators are observed. The auditing policy acts as a deterrence device, and we explain why it requires the commitment of the insurer and how it should affect the incentives of SIU staffs. The characterization of the optimal auditing strategy is robust to some degree of signal manipulation by defrauders as well as to the imperfect information of defrauders about the audit frequency. The model is calibrated with data from a large European insurance company. We show that it is possible to improve our results by separating different groups of insureds with different moral costs of fraud. Finally, our results indicate how the deterrence effect of the audit scheme can be taken into account and how it affects the optimal auditing strategy. Key words: audit; scoring; insurance fraud; red flags strategy; fraud indicators; suspicion index; moral cost of fraud; deterrence effect; signal manipulation History: Accepted by Stefan Reichelstein, accounting; received November 17, 2005. This paper was with the authors 10 months for 2 revisions. Published online in Articles in Advance September 11, 2008., 1. Introduction Auditing has been a major topic of interest in the economic and financial literature since the path-breaking articles of Townsend (1979) and Gale and Hellwig (1985). The emphasis [...]

Our paper shows that the parameters in existing theoretical models of channel substitution such as offline transportation cost, online disutility cost, and the prices of online and offline retailers interact to determine consumer choice of channels. In this way, our results provide empirical support for many such models. In particular, we empirically examine the trade-off between the benefits of buying online and the benefits of buying in a local retail store. How does a consumer's physical location shape the relative benefits of buying from the online world? We explore this problem using data from Amazon.com on the top-selling books for 1,497 unique locations in the United States for 10 months ending in January 2006. We show that when a store opens locally, people substitute away from online purchasing, even controlling for product-specific preferences by location. These estimates are economically large, suggesting that the disutility costs of purchasing online are substantial and that offline transportation costs matter. We also show that offline entry decreases consumers' sensitivity to online price discounts. However, we find no consistent evidence that the breadth of the product line at a local retail store affects purchases. Key words: channel substitution; theory testing; Internet retailing History: Accepted by Barrie R. Nault, information systems; received November 30, 2006. This paper was with the authors 6 months for 3 revisions. Published online in Articles in Advance November 26, 2008., 1. Introduction As of 2006, electronic commerce represented just 3% of total retail sales (U.S. Census Bureau 2007). Online shopping remains a small fraction of retail sales despite the well-known [...]

We study a market with customers who have heterogeneous preferences for product attributes. We consider two types of firms that compete on price and product variety: A traditional firm, which chooses a limited set of product configurations, and a customizing firm, which can produce any configuration to order. The traditional firm carries product inventories and experiences a lead-time delay. The customizing firm does not carry inventory, and its customers incur waiting costs until they receive their orders. We assume that the customizing firm has limited capacity in the short run (e.g., when it does not outsource production to high-volume manufacturers). We derive the equilibrium for a duopoly competition between the customizing firm and the traditional firm, study its characteristics, and compare it to a monopoly. We characterize conditions that favor customization under competition. We find that the customizing firm's profit is not monotone in the market size and its ease of customization. Similarly, a decline in the traditional firm's holding cost may increase or decrease its profit. We show that the unit cost differential between the firms crucially affects the customizing firm's ideal market size, its returns from expanding capacity, its product variety, and the way operational improvements affect its performance. Key words: mass customization; product strategy; pricing; operations-marketing interface History: Accepted by Paul H. Zipkin, operations and supply chain management; received December 15, 2005. This paper was with the authors 11/2 years for 4 revisions. Published online in Articles in Advance October 7, 2008., 1. Introduction Consumers are increasingly demanding products that closely match their individual preferences, and advances in manufacturing and information technologies make it possible to satisfy this demand. Traditional firms respond [...]

This paper investigates a two-factor affine model for the credit spreads on corporate bonds. The first factor can be interpreted as the level of the spread and the second factor [...]

This paper considers network supply chains with price dependent demand by modelling them as large acyclic networks. Such large networks are common in the automobile and apparel industries. We develop [...]

While research on the cost effectiveness of standardization to date has focused on the impact of different degrees of standardization, it has paid insufficient attention to the process an organization [...]

We consider the problem in which several products have to be shipped from a supplier to a set of retailers over an infinite time horizon. Each product is made available at the supplier and absorbed by each retailer at given constant production and consumption rates. For each product, the unit inventory cost at the supplier is equal to the unit inventory cost at the retailers. Shipments can be performed in each discrete time instant by a fleet of vehicles of given transportation capacity, and routing is allowed. The aim is to determine shipping policies that minimize the sum of transportation cost and inventory cost both at the supplier and at the retailers. We study direct shipping policies, i.e., policies in which each retailer is served independently. We show the worst-case performance of the best single, best double, best triple, best frequency-based, and optimal direct shipping policies. In each of these policies each link is optimized independently. We prove that, in the worst case, the ratio between the cost of the optimal direct shipping policy and the optimal cost of the problem in which routing is allowed--i.e., the worst-case performance bound of this policy--is not greater than two whenever the unit volume on each link is not lower than 1/4 of the vehicle capacity. Moreover, if the unit volume is not lower than the capacity, the bound is about 1.21. These bounds are tight and obtained by applying frequency-based policies that make use of at most three different shipping frequencies and cannot be improved by allowing more frequencies or using time-based policies on each link. Computational results show that the best among the frequency-based direct shipping policies used to obtain the worst-case results gives an average percent increase error, with respect to a lower bound on the optimal cost of the problem in which routing is allowed, of 6.44% on a large set of randomly generated problem instances. Key words: inventory routing; direct shipping routes; worst-case analysis; practical policies, 1. Introduction The integration of the supply chain is a key factor for the success of medium and large companies. Since the pioneering paper by Harris (1913), optimization models facing [...]

Traditional inventory models, with a few exceptions, do not account for the existence of inventory record inaccuracy (IRI), and those that do treat IRI as random. This study explores IRI observed both within and across product categories and retail stores. Examining nearly 370,000 inventory records from 37 stores of one retailer, we find 65% to be inaccurate. We characterize the distribution of IRI and show, using hierarchical linear modeling (HLM), that 26.4% of the total variance in IRI lies between product categories and that 2.7% lies between stores. We identify several factors that mitigate record inaccuracy, such as inventory auditing practices, and several factors that exacerbate record inaccuracy, such as the complexity of the store environment and the distribution structure. Collectively, these covariates explain 67.6% and 69.0% of the variance in IRI across stores and product categories, respectively. Our findings underscore the need to design processes to reduce the occurrence of IRI and highlight factors that can be incorporated into inventory planning tools developed to account for its presence. Key words: execution; information technology; inventory control; record inaccuracy; retail; supply chains, 1. Introduction Accurate inventory records are critical to the performance of retail organizations. U.S. retailers spend 1% of annual sales, approximately $30 billion per year, on automated decision support tools [...]

We study periodic-review inventory replenishment problems with fixed ordering costs, and show the optimality of (s, S) inventory replenishment policies. Inventory replenishment is instantaneous, i.e., the lead time is zero. We consider several sales mechanisms, e.g., auction mechanisms, name-your-own-price mechanisms, and multiple heterogeneous sales channels. We prove this result by showing that these models satisfy a recently-established sufficient condition for the optimality of (s, S) policies. Thus, this paper shows that the optimality of (s, S) policies extends well beyond the traditional sales environments studied so far in the inventory literature. Key words: (s, S) policies; stochastic inventory systems; fixed cost; auction; multiple sales channels, 1. Introduction In this paper, we study periodic-review inventory replenishment problems with fixed ordering costs when replenishment is instantaneous, i.e., the lead time is zero. In the classical literature on [...]

The only therapy for a patient with end-stage liver disease (ESLD) is liver transplantation, which is performed by using either a cadaveric liver from a deceased donor or a portion of a living-donor's liver. This study addresses the following decision problem for an ESLD patient with an available living donor. Should she have a transplantation now or wait? If she decides to have the transplantation now, should she use her living-donor liver or a cadaveric liver for transplantation? We formulate this problem as a discrete-time, infinite-horizon Markov decision process model and solve it using clinical data. Because living donors are typically related to the recipient, we incorporate a disutility associated with using the living-donor liver as opposed to using a cadaveric liver. We perform a structural analysis of the model, including a set of intuitive conditions that ensure the existence of structured policies such as an at-most-three-region (AM3R) optimal policy. Our computational experiments confirm that the optimal policy is typically of AM3R type. Key words: medical decision making; Markov decision processes; control-limit policy; health-care applications; organ transplantation; service operations; optimal stopping; dynamic programming, 1. Introduction The only therapy for a patient with end-stage liver disease (ESLD) is liver transplantation, which is performed by using either a cadaveric liver from a deceased donor or [...]

This paper examines an economic theory of when employees become entrepreneurs. It jointly addresses the two fundamental questions of when employees generate innovations, and whether these innovations are developed as internal ventures or outside the firm. The model shows that if generating innovations distracts employees from their assigned tasks, firms may discourage innovation. Firms may reject profitable opportunities that fall outside of their core activities. If employees own the intellectual property (IP), they may leave to do a start-up. The allocation of IP rights also affects the generation of innovation. The external entrepreneurial environment is a complement to firm-internal innovation. If the external environment is particularly good, firms may embrace employee innovation and take advantage of it through spin-offs. Key words: entrepreneurship; innovation; intellectual property rights; strategic management; employment policy, 1. Introduction Where do entrepreneurs come from? Employees of established companies turn out to be one of the most important sources for entrepreneurship. The semiconductor industry, for example, has an [...]

The Effects of Focus on Performance: Evidence from California Hospitals (p. 1897) Diwas Singh KC, Christian Terwiesch As healthcare costs continue to skyrocket, could the inefficiencies arising from the traditional [...]

Tournaments Without Prizes: Evidence from Personnel Records (p. 1721) Jordi Blanes i Vidal, Mareike Nossol How does feedback affect performance? The authors study a firm in which workers are paid [...]

It is truly an honor to be named Editor of Management Science, and I eagerly look forward to serving this distinguished journal. This letter outlines my strategy for further enhancing [...]