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We consider a setting in which a nonexclusive reseller procures partially substitutable products from two suppliers, one of whom introduces a direct channel. We find that the presence of the second supplier alters many of the existing results about the interactions between a reseller and an encroaching supplier. For instance, the reseller’s and the supply chain’s benefit from the direct channel disappears when the product substitutability is sufficiently large. In addition, when the reseller is nonexclusive, the encroaching supplier may either sell exclusively through its direct channel even when that channel is less efficient than the reselling channel, or sell through both channels even when its direct channel is more efficient than the reselling channel. Neither of these would occur in an exclusive reselling environment with only one supplier. This paper was accepted by Jayashankar Swaminathan, operations management.

It is now widely accepted that a retailer’s use of strategic inventory can mitigate double marginalization and improve the coordination of a supply chain, potentially benefiting both the downstream retailer and an upstream manufacturer. However, this conclusion has typically been based on the assumption that the manufacturer can observe the retailer’s level of inventory before making wholesale pricing decisions. In reality, there are many situations in which neither the retailer’s sales nor inventory are observable to the manufacturer, effectively concealing the action taken by the retailer. We investigate the implications of such a lack of observability on the use of strategic inventory in a supply chain consisting of a single retailer and a single manufacturer. We find that the manufacturer’s inability to observe inventory has significant implications for the amount of inventory and the range of holding cost for which it is held in equilibrium. In addition, we find that, in the absence of any form of uncertainty, which the manufacturer could benefit from responding to, he may prefer not to observe the retailer’s inventory. On the other hand, the retailer’s willingness to make her inventory visible depends on the holding cost. The electronic companion is available at https://doi.org/10.1287/mnsc.2018.3033 . This paper was accepted by Gad Allon, operations management.

While it has been widely recognized that a supplier's direct sales activities can have a significant impact on its interactions with a reseller, little attention has been paid to the fact that many suppliers can sell directly only by accessing consumers through an agency platform that collects commissions and fees. Because these agencies are often controlled by independent third parties or even the resellers themselves, we investigate how the control of the agency impacts the interactions between the supplier and a reseller. We find that when the agency is controlled by either a third-party or by the reseller, the effects of supplier encroachment are dramatically different than when the supplier can sell directly on its own. When the supplier can sell directly only by paying a commission to an independently operated agency platform, there is no longer a possibility that the total supply chain profit can be reduced when the supplier sells a positive quantity directly. For an intermediate range of direct selling cost, the supplier, the reseller, and society as a whole are better off when the supplier must rely upon an independently operated agency platform than when the supplier can sell directly without paying a commission. We also find that if the agency platform is controlled by the reseller to whom the supplier sells her product, this can discourage the supplier from developing direct sales capability unless the reseller either decentralizes his agency and reselling operations or is able to commit to the transaction fee in the agency channel.

Problem definition: Although it is well known that a reseller’s ability to hold strategic inventory under a short-term supply contract can potentially benefit both the reseller and a supplier, existing research on strategic inventory focuses almost exclusively on exclusive reselling environments. However, in practice, multiple suppliers often sell to the same nonexclusive reseller, and it is not uncommon for suppliers to ask for future commitments to order quantities from resellers in return for their own commitment to wholesale prices. We investigate how the possibility of strategic inventory influences competing suppliers’ choices between short-term transactional and long-term commitment contracts to a nonexclusive reseller. Methodology/results: Using a game-theoretic model, we consider the interactions between two partially substitutable suppliers and a single, nonexclusive reseller over a two-period horizon in which demand is deterministic. We demonstrate that in nonexclusive reselling environments, where more than one supplier sells its product through the same reseller, the use of strategic inventory under short-term contracts intensifies the price competition between suppliers. We show how this effect can be mitigated when one or both suppliers offer a long-term contract. Moreover, we show that long-term contracts can arise as an equilibrium outcome, particularly when products are more substitutable or holding costs are large. Managerial implications: By considering the interactions between two partially substitutable suppliers and a nonexclusive reseller in a multiperiod setting, we contribute to the literature on strategic contracting and long versus short-term contracts. Our research provides managers with a new explanation, beyond the need to encourage idiosyncratic investments or eliminate the possibility of hold-up, for why long-term contracts may benefit suppliers in practice, who face competition while selling through a nonexclusive reseller.

For many products, consumers need to physically experience them in order to assess their own valuations. We study how the equilibrium pricing among competing retailers depend upon assortments when consumers must search for this sort of fit information and are heterogeneous in their shopping behaviors. Specifically, we consider a market that consists of two retailers and two possible products. A consumer is either loyal to one of the retailers or is a shopper who follows a rational dynamic search process based on the prices and available assortments. We demonstrate how the retailers’ equilibrium pricing strategies depend upon their assortment choices and the resulting search process. Among other things, we show that, when the retailers carry non‐overlapping assortments, as search cost increases, the equilibrium pricing strategy changes from a low price with no discounting, to a high price with deep discounting. Furthermore, we find that when a full line retailer competes with a limited line retailer, a strategy of discounting only the common product can dominate one of discounting both products together. This is not the case when his rival also carries the full product line.

We consider on-demand healthcare platforms that allow patients to seek care online from distributed doctors. Healthcare costs have been steadily increasing, while patient experience continues to sour with costly (many times unnecessary) commute and waiting. To alleviate the costs, various on-demand healthcare platforms have emerged but have been little investigated in academic research. We develop a strategic queueing model where the platform decides the commission rate upon which potential doctors make their participation, service quality and pricing decisions and potential patients make their service acquisition decisions independently. We find that in equilibrium a higher commission rate always lowers doctor participation as well as service quality, but it may increase the service price if it significantly softens the competition. Moreover, as patient intensity increases, the service quality improves, accompanied largely with a higher price. We further investigate the effect of platform price control. We find that allowing the platform to control the service price in addition to the commission rate may result in more doctor participation, higher service quality and price, higher platform profit, and surprisingly even higher profit for the doctors. This generally occurs when the patient intensity is either low or high, the waiting cost is low, or the doctor heterogeneity is low. Our results are useful to understand the performance of on-demand healthcare platforms.

We consider a setting in which a non-exclusive reseller procures partially substitutable products from two suppliers, one of whom introduces a direct channel. We find that the presence of the second supplier alters many of the existing results about the interactions between a reseller and an encroaching supplier. For instance, the reseller's and the supply chain's benefit from the direct channel disappears when the product substitutability is sufficiently large. In addition, when the reseller is non-exclusive, the encroaching supplier may either sell exclusively through its direct channel even when that channel is less efficient than the reselling channel, or sell through both channels even when its direct channel is more efficient than the reselling channel. Neither of these would occur in an exclusive reselling environment with only one supplier.

Prior literature has shown that, for a symmetric information setting, supplier encroachment into a reseller's market can mitigate double marginalization and benefit both the supplier and the reseller. This paper extends the investigation of supplier encroachment to the environment where the reseller might be better informed than the supplier. We find that the launch of the supplier's direct channel can result in costly signaling behavior on the part of the reseller, in which he reduces his order quantity when the market size is small. Such a downward order distortion can amplify double marginalization. As a result, in addition to the "win-win" and "win-lose" outcomes for the supplier and the reseller, supplier encroachment can also lead to "lose-lose" and "lose-win" outcomes, particularly when the reseller has a significant efficiency advantage in the selling process and the prior probability of a large market is low. We further explore the implications of those findings for information management in supply chains. Complementing the conventional understanding, we show that with the ability to encroach, the supplier may prefer to sell to either a better informed or an uninformed reseller in different scenarios. On the other hand, as a result of a supplier developing encroachment capability, a reseller either may choose not to develop an advanced informational capability, or may become more willing to find a means of credibly sharing his information.The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2340117

Many firms employ revenue-focused managerial performance measures (RF-MPMs) that cause managers to worry more about revenues than about costs. Although this can seemingly misalign the interests of a manager, we show that the use of such measures can help supply chain partners to overcome hold-up issues with respect to capacity and promotion investments. We develop a game theoretic model in which two supply chain partners engage in repeated interactions in which the supplier invests in capacity and the buyer invests in demand promotion. Following the realization of demand in each period, the two firms negotiate over the output quantity and wholesale price. The novelty of our model is that we allow the owners of each firm to delegate decision-making power and negotiating responsibility to a free-agent manager. We characterize the conditions under which the owners of both firms employ RF-MPMs in equilibrium and benefit from doing so. For a special case of our model, we show that for the owners of the buyer, an RF-MPM is equivalent to a price only relational contract, and that it complements a price and quantity relational contract as a mechanism for mitigating hold-up issues.

We consider a retailer’s decision of whether to develop an internally produced, private label version of a national brand and the role that this decision plays in coordinating the supply chain. Our model assumes that the perceived quality of the private label is lower than that of the national brand, and we allow for the two products to have different marginal costs. We further allow for a fixed development cost that the retailer must incur to develop private label capability, and distinguish two types of private labels depending upon whether they would or would not be developed as product line extensions by a vertically integrated supply chain. We refer to these two types as first-best (FB) and non-first-best (NFB) product line extensions, respectively. When the private label can be characterized as a NFB product line extension, its development creates adverse cannibalization effects, yet it also helps to mitigate the effects of double marginalization with respect to the national brand. We characterize the conditions under which the retailer will develop private label capability, and distinguish among the conditions under which this is either beneficial or detrimental to the overall performance of the supply chain.

The large current densities attained by carbon nanotube enabled vertical field effect transistors using crystalline organic channel materials are somewhat unexpected given the known large anisotropy in the mobility of crystalline organics and their conventional ordering on dielectric surfaces which tends to orient their high mobility axes parallel to the surface. This seeming contradiction is resolved by the finding that the nanotubes induce a molecular ordering that reorients the high mobility axes to favor current flow in a direction perpendicular to the substrate surface.

This paper examines an assemble-to-order environment involving a short-life-cycle product that is sold in two different configurations, each requiring a unique component that must be stocked in advance. Both configurations of the product are assembled on the same equipment which has limited capacity. The focus of the analysis is on the determination of the appropriate stocking quantities for each of the configuration specific components. Because the same assembly capacity is often reused for different instances of the component stocking problem, we treat assembly capacity as exogenous. This represents the fact that capacity decisions are often made less frequently than are procurement/production quantity decisions. We first solve for the first-best stocking policy when the components are produced internally. We then consider the case when the components are procured from external suppliers, and investigate how different forms of contract between the assembler and the component suppliers affect coordination of the supply chain as well as each party’s profit. One particularly interesting finding is that it is possible to coordinate the supply chain with a single-price contract between each supplier and the assembler while awarding all parties positive profit.

In this paper, we investigate how opportunities to invest in demand enhancing services for a product line affect the interactions between a manufacturer and her dealer. Many demand enhancing services, e.g. after sales support, warranty repair etc. can be provided either by the manufacturer or they can be delegated to the dealer. We first show that when a manufacturer retains control of such services, the dealer will have an incentive to choose a decentralized organizational structure as a means of committing to non-product line pricing since this will encourage the manufacturer to invest more in demand enhancing services. We then consider a game that is played between the manufacturer and the dealer in which the dealer chooses between centralized (product line pricing) or decentralized (non-product line pricing) operations, and the manufacturer chooses between insourcing the services, i.e. providing them herself, or outsourcing them to the dealer. We find that the equilibrium depends on which, if any, channel partner has the ability to act as a Stackelberg leader. If the dealer can move first, then the equilibrium will always be outsourced services and centralized dealer operations. However, if either the manufacturer moves first or if neither partner can move first, then the equilibrium can be either insourced services and decentralized dealer operations or outsourced service and centralized dealer operations.

We investigate how a supplier can use a quantity discount schedule to influence the stocking decisions of a downstream buyer that faces a single period of stochastic demand. In contrast to much of the work that has been done on single-period supply contracts, we assume that there are no interactions between the supplier and the buyer after demand information is revealed and that the buyer has better information about the distribution of demand than does the supplier. We characterize the structure of the optimal discount schedule for both all-unit and incremental discounts and show that the supplier can earn larger profits with an all-unit discount.

We consider how a merger between two naturally differentiated dealers affects their interactions with a common supplier and identify conditions under which the merger can increase or decrease the combined net worth of the two firms. Among other things, we find that the attractiveness of merging depends upon the extent to which end demand can be stimulated by either an upstream supplier or the dealers. Specifically, the greater the supplier's ability to invest in stimulating end demand, the more likely it is that the naturally differentiated firms will be better off operating independently than merging. On the other hand, if the greatest opportunities for stimulating demand are through the service that is provided by the dealers, then merging their operations will be more attractive. © 2006 Wiley Periodicals, Inc. Naval Research Logistics, 2007

For many products, consumers may need to physically experience them in order to assess their own valuations. We consider how such uncertainty can affect the equilibrium pricing and assortment choices among competing retailers. Specifically, we consider a market that consists of two retailers with identical cost structures and two products with symmetric underlying demand. We characterize the pricing equilibria for each possible set of assortments based on how consumers optimally search for products in response to observed prices and assortments, and show how the structure of a retailer's inter-temporal pricing pattern (EDLP or HLP) should depend upon his own as well as his rival's assortment and the search costs. In addition, we provide conditions under which the retailers carry asymmetric assortment breadths in equilibrium.

This paper explores production and outsourcing decisions for two Original Equipment Manufacturers (OEMs) who produce partially substitutable products and have opportunities to invest in reducing the manufacturing cost. In such an environment, competition drives both OEMs to set lower prices and invest more than would maximize their combined profits, particularly when product substitutability is high. However, outsourcing provides a mechanism by which the two OEMs can credibly signal that they will not overinvest in cost reduction, mitigating a mutually destructive cost competition. Our paper explores the role that an external supplier(s) can play in dampening competition between the OEMs when there are opportunities to invest in cost reduction. In particular, we characterize the conditions under which a supplier can profitably enter the market by inducing the OEMs to outsource production. We first examine a basic model of two identical OEMs in which there is a single common supplier and a single component...

It has been recognized that when a durable goods manufacturer sells its output, it has an incentive to produce at a rate that will drive down the market price of the product over time. Because anticipation of declining prices makes consumers less willing to invest in owning the durable good, selling can be self-defeating for the manufacturer. If the manufacturer instead leases the product, it can eliminate its own incentive to decrease the price over time, which allows it to extract larger rents from consumers. In this paper, we investigate how a durable goods manufacturer’s choice between leasing and selling is affected by a complementary product that is produced by an independent firm. We show that a durable goods manufacturer that leases its product has an incentive to increase prices (by limiting the availability of the product) in response to the availability of a complement. Because this potential for opportunistic behavior discourages output of the complement, leasing can also be problematic. As a result, the durable goods manufacturer faces a trade-off between leasing, which commits the manufacturer to not overproduce, and selling, which commits it to not underproduce. Our contribution is to identify this trade-off and show how a durable goods manufacturer can use a combination of leasing and selling to balance its strategic commitment across both its own market as well as the complementary market.

This paper presents a general disruption management approach for a two-stage production and inventory control system. A penalty cost for deviations of the new plan from the original plan is incorporated and the concept of a disruption recovery time window is introduced. We define two classes of problems: one with fixed setup epochs and another with flexible setup epochs. With linear or quadratic penalty functions for production/ordering quantity change and fixed setup epochs, the best recovery plan is obtained by solving a quadratic mathematical programming problem. With convex penalty functions for quantity changes and flexible setup epochs, it is shown that the second stage orders have identical order quantities within each production cycle. Therefore, in a lot-for-lot system, the ordering and production quantities for both stages are the same. As a special case, we consider disruption recovery problems with short time windows spanning one or two production cycles. We also discuss solution procedures fo...

It is generally in a firm’s interest for its supply chain partners to invest in innovations. To the extent that these innovations either reduce the partners’ variable costs or stimulate demand for the end product, they will tend to lead to higher levels of output for all of the firms in the chain. However, in response to the innovations of its partners, a firm may have an incentive to opportunistically increase its own prices. The possibility of such opportunistic behavior creates a hold-up problem that leads supply chain partners to underinvest in innovation. Clearly, this hold-up problem could be eliminated by a pre-commitment to price. However, by making an advance commitment to price, a firm sacrifices an important means of responding to demand uncertainty. In this paper we examine the trade-off that is faced when a firm’s channel partner has opportunities to invest in either cost reduction or quality improvement, i.e. demand enhancement. Should it commit to a price in order to encourage innovation, or should it remain flexible in order to respond to demand uncertainty. We discuss several simple wholesale pricing mechanisms with respect to this trade-off.

In this paper the trade-off between strategic commitment and operational flexibility is examined as it arises in a supply chain when a supplier offers competing buyers opportunities to make early purchase commitments for a product with a short life cycle. Traditionally, the use of incentives for early purchase commitments for short life-cycle products has been justified on the basis of a supplier's production lead times or capacity constraints. An alternative explanation has been proposed by offering early purchasing opportunities, a supplier can influence the form of competition in the downstream market. Using a single period model, it has been shown that, below a threshold level of demand uncertainty, the supplier can benefit from providing adequate pricing incentives to entice downstream buyers to commit to purchase quantities before demand information is revealed. Moreover, such early purchasing opportunities can benefit the supplier as well as the buyers even in the absence of production lead times or capacity constraints.

In section E.C.1, we show that the optimal separating solution always dominates the optimal pooling solution in our model. In section E.C.2, we present two extensions of our base model. In EC.2.1, we extend our model to a setting with a continuously distributed market size. We allow for the possibility that the development of encroachment capability allows the supplier to receive demand information through her direct channel in EC.2.2.The paper "Supplier Encroachment as an Enhancement or a Hindrance to Nonlinear Pricing" to which these Appendices apply is available at the following URL:http://ssrn.com/abstract=2118161

In this paper we study a situation in which a broker must manage the procurement of a short-life-cycle product. As the broker observes demand for the item, she learns about the demand process. However, as is often the case in practice, it becomes either more difficult or more expensive to procure the item as the selling season advances. Thus, the broker must trade off higher procurement costs against the benefit of making ordering decisions with better information about demand. Problems of this type arise, for example, in the travel industry, where a travel agent's cost of procuring airline and hotel reservations increases as the date of a vacation package approaches. We develop a newsvendor-like characterization of the optimal procurement policy. In a numerical analysis, we demonstrate how broker procurements tend to cluster just before price increases and how brokers can benefit from explicitly considering the effects of information about demand in their ordering policies.

This paper addresses the problem of jointly determining prices and production schedules for a set of items that are produced on the same production equipment. Under the assumptions that the production setup costs are negligible and that demand is seasonal but price dependent, we exploit the special structure of the problem to develop a solution procedure. Through a set of numerical examples, we demonstrate how a product's contribution to aggregate seasonality can increase its optimal price. Our examples also demonstrate that, among products that experience demand peaks during the firm's busy season, those that peak early in the busy season should be priced more aggressively than those that peak later.

Buyers are frequently encouraged through price discounts to buy in certain ways — purchase in large quantities or purchase in advance of their needs. Ideally, these pricing incentives can lead to lower costs for both the buyer and the seller. In this paper, a situation is examined where a steel distributor faces stiff competition in its highly undifferentiated service offerings and price is the primary factor in attracting sales. A model is developed that quantifies the benefits to the supplier from obtaining advanced commitments from downstream customers. This model can be used to suggest the maximum price discount that can be offered to customers to encourage them to commit to their orders in advance. Careful balancing of the advanced ordering time with the price discount can lead to cost reductions for both members of the supply channel.

This paper addresses the problem of jointly determining a single price and production schedule for a product with seasonal demand. Under the assumption that the ratio of the demands in any two periods does not depend upon the price at which the product is offered, we develop a procedure that guarantees an optimal solution. Perhaps more importantly, however, our model provides insight into the manner in which the firm's production cost increases with the intensity of total demand.

In this paper, we study a service network in which an agency is responsible for satisfying a constraint on the expected waiting and service time experienced by customers. However, the agency does not render the actual service. Instead, it serves to coordinate independently operated facilities. The coordinating agency must devise a strategy for allocating compensation and customers to the self-interested operators in order to minimize its own costs. For a network of two facilities, we model the facilities' self-interested capacity decisions as the solution to a game. Using this analytical framework, we compare two types of customer allocation: one from a common queue, and one from separate queues. Our analysis shows that it can be in the best interest of the coordinating agency to adopt a separate queue allocation scheme instead of one based on a common queue. Although doing so sacrifices risk-pooling benefits, these can be more than offset by the stronger incentives that are created for the independent facilities.

This paper considers the pricing problem of a service facility when services are jointly produced by the customers and the facility. Building on the work of Mendelson (1985), we model the facility as a GI/GI/1 queue with customer-chosen service rates and linear delay costs. We show that the service rates chosen by the customers, based on their self-interest, are always suboptimal for the facility due to congestion externalities. We derive optimal incentive-compatible pricing schemes that can achieve optimal arrival rates and induce customers to choose optimal service rates. For the case of systemwide net-value maximization, we show that the optimal incentive-compatible pricing scheme consists of a variable fee that is proportional to the actual service time and a fixed rebate that is equal to a customer's expected delay cost in the queue. For the case of profit maximization of the facility, we show that the optimal pricing scheme again consists of a fixed fee and a variable fee. One insight from our analysis is that it may be appropriate for a service facility to reimburse each customer for his actual delay cost in the queue.

Manufacturers often use returns policies to encourage retailers to stock and price items more aggressively. We focus on the effect that such policies have on both a retailer's and a manufacturer's profits when the retailer must commit prior to the selling season to both a stocking quantity and a price at which to sell an item. Such a commitment is often necessary for retailers who sell primarily through catalogues.

In many manufacturing settings there is a significant cost associated with lost capacity due to machine failures. When this is combined with long lead times on the procurement of spare parts, it is often necessary to maintain inventories of critical machine components. Thus, the maintenance policy for the machines is inherently coupled to the inventory policy for spare parts. In this paper we identify and investigate the relationship between these two policies.

In many industries, original equipment manufacturers (OEMs) must obtain critical components from a few powerful suppliers. To the extent that the OEMs are also concentrated, the interactions between the suppliers of critical components and the OEMs are strategic, and have implications for how an incumbent OEM chooses its product line and interacts with potential rivals. We demonstrate that, by adding a low-end product line extension, an OEM can induce a strategic supplier to offer more favorable pricing. Moreover, depending upon the cost structure and relative performance of the product line extension, the OEM may benefit even more from the low-end line extension if it is produced by a rival instead of by itself, even if it cannot obtain any licensing income from it. Among other things, we show that this can result in a decentralized OEM accommodating competition from rivals producing product line extensions that would not be developed in a vertically integrated supply chain. In an extension, we re-examine the common assumption that the supplier unilaterally dictates a single wholesale price that is available to all downstream buyers. We demonstrate that, by committing to offer a “lowest available” wholesale price to all downstream buyers, a supplier can encourage an incumbent OEM to share its technology (or otherwise accommodate the entry of a rival) so that the supplier, the incumbent OEM, and the rival are all better off.

We explore the interactions between channel structure and mode of operations (leasing versus selling) and their implications for a manufacturer's willingness to invest in making her product more durable. Using a centralized manufacturer who leases her product as a point of reference, we find that an isolated change in either the channel structure (centralized to decentralized), or the operational mode (leasing to selling) can decrease the manufacturer's willingness to provide durability. However, if combined, these two changes together may strengthen the manufacturer's willingness to invest in durability. Consequently, a manufacturer who sells through an intermediary may invest more in durability than one who leases directly to end consumers. This result challenges the conventional wisdom in two different paradigms. First, from the perspective that durability is a dimension of quality, it challenges the conventional view that decentralization will decrease a manufacturer's incentive to provide a high quality product. Second, from the perspective of the externality that is created when a firm sells a durable product to strategic consumers who anticipate declining prices, it challenges the conventional view that a manufacturer who leases will provide more durability than one who sells.

This is the Online Appendix to the paper "Supplier Encroachment Under Asymmetric Information."The paper "Supplier Encroachment Under Asymmetric Information" to which these Appendices apply is available at the following URL: http://ssrn.com/abstract=2018432

Based on our interactions with managers at two large hotels, we present a realistic model of the hotel reservation problem. Unlike traditional models, ours does not assume that all customers arrive simultaneously on the targeted booking date. We explain why this assumption may not be appropriate for the hotel industry and develop a model of reservation booking which explicitly includes the room allocation decisions which are made on the targeted booking date. Based on observations of how the problem is solved in practice as well as the insights gained from this analysis, we develop simple heuristic procedures for accepting reservations. Computational results demonstrate that these heuristics perform well relative to an upper bound that is based on perfect information about reservations requests and customer arrivals.

When manufacturing processes have a tendency to deteriorate over time and begin producing defective products, there is always a trade-off between the cost and/or rework time that is associated with such defectives and the amount of time that is spent inspecting and restoring the process. Although a considerable amount of attention has been devoted to this trade-off as it is found in high-volume, repetitive manufacturing, we study it in a job shop environment. In particular, we study the way in which inter-job setups affect the inspection policy. After modeling the problem as one of maximizing the throughput of defective-free jobs, we describe a simple algorithm which identifies optimal inspection intervals.

We consider a setting in which consumers experience distinct instances of need for a durable product at random intervals. Each instance of need is associated with a random utility and the consumers are differentiated according to the frequency with which they experience such instances of need. We use our model of consumer utility to characterize the firm's optimal strategy of whether to sell, rent, or do a combination of both in terms of the transaction costs and consumers' usage characteristics. We find that the two modes of operation serve different roles in allowing the firm to price discriminate. While sales allow the firm to discriminate among consumers of different usage frequencies, rentals allow it to discriminate according to consumers' realized valuations. Consequently, even when transaction costs are negligible, it is often optimal for the firm to simultaneously rent and sell its product. In addition, we find that although sales and rentals are substitutes and that the offering of sales weakly increases rental prices, it is possible that the introduction of rentals to a pure selling operation can either increase or decrease the optimal sales prices.

The objective of this paper is to extend existing understanding of supplier encroachment to contexts in which there is information asymmetry and the supplier can use nonlinear pricing. Prior research has shown that supplier encroachment can mitigate double marginalization and thus benefit both the supplier and the reseller. However, under symmetric information, this benefit disappears if the supplier can use nonlinear pricing. In our model, the reseller observes the true market size while the supplier knows only the prior distribution, i.e., a seemingly ideal setting for implementing mechanism design through nonlinear pricing. We first show that, because encroachment capability enables the supplier to make an ex-post output decision, it fundamentally alters the structure of the optimal nonlinear pricing policy. In addition to the usual downward distortion effect, where the reseller may purchase less than the efficient quantity, we also have the possibility for upward distortion. Thus, under asymmetric information and nonlinear pricing, supplier encroachment has two opposing effects. On one hand, the ability to shift sales to the direct channel allows the supplier to reduce information rents with less sacrifice of efficiency; but on the other hand, by introducing the possibility of her own opportunistic behavior, it can result in upward distortion of the quantities sold through the reselling channel, which is a new source of inefficiency. Depending upon the relative efficiency of the reselling channel and the demand distribution, either of these two effects may dominate and the supplier's ability to encroach may either benefit or hurt both the supplier and the reseller.The appendices for this paper are available at the following URL: http://ssrn.com/abstract= 2403615

A wide variety of manufacturing operations can be characterized as co-production with substitutable demand. That is, there are many situations in which the availability of two or more items are related, and because of randomness in either supply or demand, it can be advantageous to substitute one of these items for another. Our research was motivated by the semiconductor industry, where chips are produced in large batches. Because of the presence of randomness in the process, individual chips in a given batch can perform differently. Because some customers have stricter specifications than others, chips within the same batch can be classified and sold as different products according to their measurable performance. We model the production and inventory problem as a stochastic dynamic program in which the objective is to minimize the costs of meeting contractual obligations. After developing heuristic methods of solving the problem in practice, we validate them against a lower bound on the cost of an optimal solution to the dynamic program.

Many durable products cannot be used without a contingent consumable product, e.g., printers require ink, iPods require songs, razors require blades, etc. For such products, manufacturers may be able to lock in consumers by making their products incompatible with consumables that are produced by other firms. We examine the effectiveness of such a strategy in the presence of strategic consumers who anticipate the future prices of both the durable product and the contingent consumable. Under a lock-in strategy, the manufacturer has pricing power over the contingent consumable, which she can use to extract additional rents from higher valuation consumers, but such pricing power may also reduce consumers' willingness to pay for the durable because it subjects them to being held up with higher consumables prices in the future. Restricting our attention to linear pricing policies, we find that if the manufacturer can commit to shutting down production of her durable after an initial one-time sale, then competition from another consumable of an appropriately degraded level of quality can benefit the manufacturer by mitigating consumers' fears of being held up. On the other hand, when the manufacturer cannot commit to shutting down production of her durable, then her own output of additional durables gives her an incentive to keep consumables prices low, and competition in the consumables market is less beneficial. This paper was accepted by Pradeep Chintagunta and Preyas Desai, special issue editors. This paper was accepted by Pradeep Chintagunta and Preyas Desai, special issue editors.

Many durable products cannot be used without a contingent consumable product, e.g. printers require ink, iPods require songs, razors require blades, etc. For such products, manufacturers may be able to lock-in consumers by making their products incompatible with consumables that are produced by other firms. We examine the effectiveness of such a strategy in the presence of strategic consumers who anticipate the future prices of both the durable product and the contingent consumable. Under a lock-in strategy, the manufacturer has pricing power over the contingent consumable which she can use to extract additional rents from higher valuation consumers, but such pricing power may also reduce consumers' willingness to pay for the durable because it subjects them to being held-up with higher consumables prices in the future. Restricting our attention to linear pricing policies, we find that if the manufacturer can commit to shut down production of her durable after an initial one-time sale, then competition from another consumable of an appropriately degraded level of quality can benefit the manufacturer by mitigating consumers' fears of being held-up. On the other hand, when the manufacturer cannot commit to shutting down production of her durable, then her own output of additional durables gives her an incentive to keep consumables prices low, and competition in the consumables market is less beneficial.

In spite of the fact that many durable products are sold through dealers, the literature has largely ignored the issue of how product durability affects the interactions between a manufacturer and her dealers. We seek to fill this gap by considering a durable goods manufacturer that uses independent dealers to get her product to consumers. In contrast to much of the literature, we specifically consider the possibility that if the manufacturer sells her product, then the dealers can either sell or lease it to the final consumer. One of our more interesting findings is that, when the level of competition among dealers is high, the manufacturer prefers to lease the product to her dealers, which forces them to lease to consumers. This complements existing results that show that when suppliers of durable goods interact directly with consumers, selling is the dominant strategy for high levels of competitive intensity. In addition, our results help to explain differences in the selling / leasing policies that are observed in the office equipment and automobile industries.

It has been well documented that buyers can benefit significantly from being able to place reactive orders in response to observed demand for a short life cycle product. In practice, suppliers often fill these reactive orders with less than total reliability. Although reactive order fulfillment can allow the supply chain to capture more of the demand that is realized, it can also deter retailers from ordering as much initially. In this chapter, we investigate how this trade-off affects the retailers’ ordering behavior as well as the profits of the manufacturer, the retailers, and the supply chain as a whole. We also develop insight as to how a manufacturer should offer a reactive ordering policy.

In spite of the fact that many durable products are sold through dealers, the literature has largely ignored the issue of how product durability affects the interactions between a manufacturer and her dealer(s). We seek to fill this gap by considering a durable goods manufacturer that uses an independent dealer(s) to get her product to consumers. If the manufacturer sells her product to the dealer, then the dealer can either sell or lease it to the final consumer. On the other hand, if the manufacturer leases her product to the dealer, then the dealer is forced to lease it to the consumer. We first characterize the equilibrium for a manufacturer who distributes through a single dealer as a function of the costs of production and distribution. Among other things, we show that the selling and leasing decisions of the two channel partners should balance operational efficiency against the mitigation of time inconsistency. Subsequently, we characterize the equilibrium for a manufacturer who distributes through multiple dealers as a function of the intensity of inter-dealer competition. One of our more interesting findings is that, when the level of competition among dealers is high, the manufacturer prefers to lease the product to her dealers, which forces them to lease to consumers. This complements existing results that show that when suppliers of durable goods interact directly with consumers, then selling becomes the dominant strategy when competitive intensity is high.

It has been nearly 50 years since researchers began to develop analytical models to aid in simultaneous decisions regarding pricing strategy, which influences demands, and production/procurement decisions, which determine the cost of satisfying those demands. In this chapter, we provide a comprehensive review of analytical models on this topic, focusing on models in which external demand is price-sensitive. We review models in both continuous and discrete-time frameworks, considering both constant and time-varying demand functions, with and without demand uncertainty. Although our emphasis is on decision problems facing a single firm, we also provide a brief overview of models involving multiple firms or multiple decision-makers. We also offer suggestions for future research.

We investigate how supplier can use a quantity discount schedule to influence the stocking decisions of a downstream buyer that faces a single period of stochastic demand. In contrast to much of the work that has been done on single-period supply contracts, we assume that there are no interactions between the supplier and the buyer after demand information is revealed and that the buyer has better information about the distribution of demand than does the supplier. We characterize the structure of the optimal discount schedule for both all-unit and incremental discounts and show that the supplier can earn larger profits with an all-unit discount.

We investigate how a non-linear price schedule can be used to influence stocking decisions and supply chain performance in single period interactions between a supplier and buyer(s). In contrast to much of the work that has been done on single period supply contracts, we assume that there is no opportunity for ongoing interactions between the supplier and the buyers after demand information is revealed. Furthermore, we assume that there are either heterogeneous buyers that face different distributions of demand or that there is a single buyer that has better information about the distribution of demand than does the supplier.

It is a pleasure to announce that the 2013 Manufacturing & Service Operations Management Best Paper Award goes to Omar Besbes, Robert Phillips, and Assaf Zeevi for “Testing the Validity of a Demand Model: An Operations Perspective” for its contribution to theory and practice of operations management. The three authors will share a $2,000 prize, contributed by the MSOM Society of INFORMS.

The management of a hotel reservation system involves repeated resource allocation decisions under uncertainty. The objective of these decisions is to maximize the expected profit of the hotel by allocating reservations to different types of customers. Since both the demand for reservations and the rate at which customers fail to show up are uncertain, the decision problems are inherently difficult. Historically, reservations were accepted in an ad hoc basis and managers were evaluated on the basis of the average utilization of capacity. However, as data collection methods become increasingly sophisticated, there is an opportunity to take advantage of formal modeling techniques to maximize revenues and improve productivity in the hotel industry.