Search

Problem definition: We investigate the optimal salesforce compensation scheme in the context of private information and unobservable actions, considering common operational factors encountered in practice, including inventory costs, contractible versus censored demand information, and controlled versus delegated ordering. Methodology/results: Based on an agency model with general demand and cost functions, we derive optimality conditions for implementable contracts that can achieve the second-best outcome in all scenarios. The contracts are in the forms of a menu with linear compensation for demand or sales, incorporating inventory costs. Moreover, the contracts feature adjustments in compensation corresponding to the ordering level if it is delegated. Managerial implications: Our study reveals that, under reasonably mild conditions, optimal salesforce contracts can still maintain relatively simple forms, even when confronted with common operational factors and generalized demand and cost functions. However, the contracts must be tailored to suit the operational settings. Intriguingly, neither the loss of demand information nor the delegation of inventory decisions would compromise system efficiency at optimum. Funding: H. Song is partially supported by the Key International Cooperation and Exchange Projects of the NSFC [Grant W2411062] and the Foundation for Innovative Research Groups of the NSFC [Grant 71821002]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.0400. [ABSTRACT FROM AUTHOR]

Competing firms may engage in group buying (GB) to benefit from a quantity discount from a common supplier. We study GB under different power structures (i.e., Nash and Stackelberg) and investigate how the power structures can be endogenized along with the resulting GB outcome. We employ a game-theoretic framework in which two firms under Cournot competition can group their purchases if it is beneficial compared to individual purchasing. We show that under exogenous power structures, when the two firms have highly asymmetric market bases, Nash GB is unattainable due to severe co-opetition conflict, and Stackelberg GB can better resolve the conflict. Our results suggest that power structures may fundamentally affect firms' GB incentives, and no power structure is always superior to others. We then endogenize the power structures of the two firms based on a two-stage extended game. Using Pareto-risk dominance, we identify conditions under which one firm endogenously emerges as the Stackelberg leader with the rival as the follower, as well as the conditions under which both firms endogenously choose Nash GB or opt for independent purchasing. We demonstrate that the two firms can largely resolve the battle for GB leadership and achieve an efficient outcome in most cases. Our study is the first to compare different exogenous power structures and consider endogenous power structures in the context of GB. [ABSTRACT FROM AUTHOR]

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. History: Accepted by Gad Allon, operations management. Supplemental Material: The electronic companion is available at https://doi.org/10.1287/mnsc.2018.3033. Keywords: dynamic contracts * hidden action * strategic inventory * inventory observability * Stackelberg leadership, 1. Introduction Although a good bit of attention has been focused on the implications of sharing information about costs and about demand in a supply chain, in practice there may [...]

Abstract. This paper examines how managerial short-termism can affect a firm's inventory decision when external investors have only partial information about the firm's demand uncertainty. We first study the scenario [...]

Problem definition: Modern technologies have made it viable for firms to lower the costs of switching on and off production in response to market changes. In this paper, we explore how production start–stop flexibility impacts joint operating policies, financing, and investment timing decisions. Methodology/results: We develop a continuous-time, optimal stopping model in which equity holders of the firm make operational decisions regarding pausing and restarting production as well as when to default. The degree of production flexibility is measured by switching costs. On the one hand, production flexibility influences the trade-off between tax shields and default costs for the capital structure decision; on the other hand, debt levels impact the equity holders' incentive to use flexibility by pausing and restarting operations. We find that optimal debt usage is not monotone in production flexibility. Specifically, when switching costs are in a low region, the optimal debt level decreases slowly as switching costs increase. As switching costs increase into an intermediate region, the optimal debt level decreases sharply because the firm needs to reduce its debt to ensure the equity holders maintain flexible operating policies. However, when switching costs exceed a threshold, the cost of compromising the use of debt becomes excessive, and the firm substantially increases its debt to gain the full benefit of the tax shield; in so doing, the equity holders forgo flexibility and maintain production continuously until default. This financing strategy affects the firm's investment timing decision, which also exhibits a nonmonotone pattern. Managerial implications: When a firm optimizes the debt usage and investment timing, the incentive of utilizing flexibility embedded in the production technology by the equity holders needs to be taken into account. Our findings also reveal new benefits and guidance for the potential design of incentive contracts to mitigate agency costs. Funding: Q. Wu was supported by Weatherhead School of Management Intramural [Grant IG121420-05-QXW132] for this research. Supplemental Material: The online supplement is available at https://doi.org/10.1287/msom.2022.0213. [ABSTRACT FROM AUTHOR]

Abstract. Trade credit is a widely adopted industry practice. Prior research has focused on how trade credit benefits firms by improving vertical supply chain relationships. This paper offers a novel [...]

We study leader-based collective bargaining (LCB), under which a leading buyer (leader) and a following buyer (follower) form an alliance to jointly purchase a common component from a supplier. Although the leader and the follower cooperate in their component purchase, they compete in selling their end products. We first analyze the most common and simple form of LCB, equal price LCB, under which the follower pays to the leader the same wholesale price that the leader obtains from his negotiation with the supplier. We compare each buyer's profit under the equal price LCB with the benchmark where each buyer purchases separately from the supplier. We find that although the alliance might obtain a lower wholesale price and although the leader is always better off under equal price LCB, the follower can be worse off if the competition intensity of the leader's and follower's products is within an intermediate region. We identify a competition effect resulting from equal price LCB that can place the follower at a disadvantage in the competition. This finding implies that the equal price LCB might not be sustainable in practice. In view of this limitation, we investigate an alternative form of LCB, fixed price LCB, under which the follower pays a fixed price to the leader regardless of the wholesale price the leader obtains from the supplier. We show that fixed price LCB benefits not only the leader but also the follower, compared with separate purchases, which implies that fixed price LCB always achieves a win-win outcome for the buyers. Our analysis further shows that even the supplier might benefit from this form of LCB. Funding: The corresponding author, Baozhuang Niu, was supported by the National Natural Science Foundation of China [Grant 71571194]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2016.0592. Keywords: leader-based collective bargaining * separate purchase * commitment * equal price mechanism * fixed price mechanism, 1. Introduction Collective bargaining, by which two or more competing buyers form an alliance to jointly purchase goods or services from their suppliers, has become a frequently used cooperation strategy [...]

Merchant operations involves valuing and hedging the cash flows of commodity- and energy-conversion assets as real options based on stochastic models that inevitably embed model error. In this paper we [...]