Newsvendor Pricing Problem in a Two‐Sided Market

We study the pricing problem of a “platform” intermediary to jointly determine the selling price of the platforms (hardware) sold to consumers and the royalty charged to content developers for content (software), when the demands for content and for platforms are interdependent. Our model elucidates the impact of supply chain replenishment costs and demand uncertainty on the strategic issues of platform pricing in a two‐sided market.     

Impulse Balance and Multiple‐Period Feedback in the Newsvendor Game

Human subjects in the newsvendor game place suboptimal orders: orders are typically between the expected profit‐maximizing quantity and mean demand (“pull‐to‐center bias”). In previous work, we have shown that impulse balance equilibrium (IBE), which is based on a simple ex post rationality principle along with an equilibrium condition, can predict ordering decisions in the laboratory. In this study, we extend IBE to standing orders and multiple‐period feedback and show that it predicts—in line with previous findings—that constraining newsvendors to make a standing order for a sequence of periods moves the average of submitted orders toward the optimum.     

The Role of Contract Negotiation and Industry Structure in Production Outsourcing

Despite the spread of cost‐driven outsourcing practices, academic research cautions that suppliers' cost advantage may weaken manufacturers' bargaining positions in negotiating outsourcing agreements, thereby hurting their profitability. In this study, we attempt to further understand the strategic impact of low‐cost outsourcing on manufacturers' profitability by investigating the contractual form of outsourcing agreements and the industry structure of the upstream supply market. We consider a two‐tier supply chain system, consisting of two competing manufacturers, who have the option to produce in‐house or to outsource to an upstream supplier with lower cost. To reach an outsourcing agreement, each manufacturer engages in bilateral negotiation with her supplier, who may be an exclusive supplier or a common supplier serving both manufacturers. Our analysis shows that wholesale‐price contracts always mitigate the competition between manufacturers regardless of whether they compete with price or quantity. In contrast, two‐part tariffs intensify the competition when the manufacturers compete with quantity, but soften it when they compete with price. As a result, when outsourcing with two‐part tariffs, the manufacturers may earn lower profits than they would from in‐house production, although the suppliers are more cost efficient. This suggests that managers have to be wary about the downside of using coordinating contracts such as two‐part tariffs when pursuing low‐cost outsourcing strategies. Our analysis also sheds some light on the profitability of using an exclusive supplier for outsourcing. When outsourcing with wholesale‐price contracts, the competing manufacturers are better off outsourcing to an exclusive supplier. However, when outsourcing with two‐part tariffs, the manufacturers may earn higher profits by outsourcing to a common supplier than to an exclusive one when the manufacturers' bargaining power is sufficiently strong (weak) under quantity (price) competition.     

引入信息成本的信息结构与股权融资成本

本文放松了Easley和O’Hara信息成本为0的假设,在他们的信息结构模型的理论框架下,构建了一个引入信息成本因素的信息结构模型。从信息结构的四个方面：信息成本、信息风险、信息披露的质量和先验信息质量研究了信息结构与股权融资成本之间的关系,得出了四个推论,从而拓展了信息结构模型。在进一步的实证研究中,选取市场微观结构理论中的逆向选择成本、知情交易概率-PIN分别作为信息成本和信息风险的衡量指标,研究发现：信息成本与股权融资成本之间呈倒‘U’型曲线关系;信息风险越高的股票股权融资成本越高;信息披露质量越高的公司,股权融资成本越低;先验信息质量越高,股权融资成本越低;从而对推论进行了有效验证。本文与Easley和O’Hara最大不同在于引入了信息成本因素,并且用实证方法对推论进行了验证,具有一定的开创性。     

The Retail Space‐Exchange Problem with Pricing and Space Allocation Decisions

We consider retail space‐exchange problems where two retailers exchange shelf space to increase accessibility to more of their consumers in more locations without opening new stores. Using the Hotelling model, we find two retailers’ optimal prices, given their host and guest space in two stores under the space‐exchange strategy. Next, using the optimal space‐dependent prices, we analyze a non‐cooperative game, where each retailer makes a space allocation decision for the retailer's own store. We show that the two retailers will implement such a strategy in the game, if and only if their stores are large enough to serve more than one‐half of their consumers. Nash equilibrium for the game exists, and its value depends on consumers’ utilities and trip costs as well as the total available space in each retailer's store. Moreover, as a result of the space‐exchange strategy, each retailer's prices in two stores are both higher than the retailer's price before the space exchange, but they may or may not be identical.     

How Costs and Heterogeneous Consumer Price Sensitivity Interact with Add‐On Pricing

Firms often cite cost savings as a reason why they charge separately for add‐ons. Firms also often face situations where consumers' price sensitivity is correlated with their valuation of add‐ons. While cost savings may directly translate into profit gains in some scenarios, this study examines the strategic implications of add‐on pricing and is the first to suggest that cost savings from add‐on pricing may in fact result in profit loss for firms when consumers are heterogeneous in price sensitivity. This is because add‐on pricing can trigger a revenue loss that exceeds any cost savings, thus leading to a negative net profit change for competing firms. Even if firms have the capability to pre‐commit to not adopting add‐on pricing, we show that competing firms can be locked in a prisoner's dilemma where all choose to adopt add‐on pricing and lose profits (as compared to none adopting add‐on pricing). We further show the possibility that the greater the cost of providing the add‐on (and the greater the cost savings generated from add‐on pricing), the worse this profit loss gets.     

The Benefits and Costs of Disclosing Information about Risks: What Do We Know about Right‐to‐Know?

Following the attacks of September 11, 2001, the Environmental Protection Agency and other government agencies removed information from their web sites that they feared could invite attacks on critical public and private infrastructure. Accordingly, the benefits and costs of environmental information disclosure programs have come under increasing scrutiny. This article describes a framework for examining these benefits and costs and illustrates the framework through brief case studies of two information disclosure programs: risk management planning and materials accounting. The article outlines what we know and still need to find out about information disclosure programs in order to appropriately balance benefits and costs.     

Contract Structure,Risk‐Sharing,and Investment Choice

Few microfinance‐funded businesses grow beyond subsistence entrepreneurship. This paper considers one possible explanation: that the structure of existing microfinance contracts may discourage risky but high‐expected‐return investments. To explore this possibility, I develop a theory that unifies models of investment choice, informal risk‐sharing, and formal financial contracts. I then test the predictions of this theory using a series of experiments with clients of a large microfinance institution in India. The experiments confirm the theoretical predictions that joint liability creates two potential inefficiencies. First, borrowers free‐ride on their partners, making risky investments without compensating partners for this risk. Second, the addition of peer‐monitoring overcompensates, leading to sharp reductions in risk‐taking and profitability. Equity‐like financing, in which partners share both the benefits and risks of more profitable projects, overcomes both of these inefficiencies and merits further testing in the field.     

Replenishment Policies for Multi‐Product Stochastic Inventory Systems with Correlated Demand and Joint‐Replenishment Costs

This study analyzes optimal replenishment policies that minimize expected discounted cost of multi‐product stochastic inventory systems. The distinguishing feature of the multi‐product inventory system that we analyze is the existence of correlated demand and joint‐replenishment costs across multiple products. Our objective is to understand the structure of the optimal policy and use this structure to construct a heuristic method that can solve problems set in real‐world sizes/dimensions. Using an MDP formulation we first compute the optimal policy. The optimal policy can only be computed for problems with a small number of product types due to the curse of dimensionality. Hence, using the insight gained from the optimal policy, we propose a class of policies that captures the impact of demand correlation on the structure of the optimal policy. We call this class (s, c, d, S)‐policies, and also develop an algorithm to compute good policies in this class, for large multi‐product problems. Finally using an exhaustive set of computational examples we show that policies in this class very closely approximate the optimal policy and can outperform policies analyzed in prior literature which assume independent demand. We have also included examples that illustrate performance under the average cost objective.     

Dynamic Matching,Two‐Sided Incomplete Information,and Participation Costs: Existence and Convergence to Perfect Competition

Consider a decentralized, dynamic market with an infinite horizon and participation costs in which both buyers and sellers have private information concerning their values for the indivisible traded good. Time is discrete, each period has length δ, and, each unit of time, continuums of new buyers and sellers consider entry. Traders whose expected utility is negative choose not to enter. Within a period each buyer is matched anonymously with a seller and each seller is matched with zero, one, or more buyers. Every seller runs a first price auction with a reservation price and, if trade occurs, both the seller and the winning buyer exit the market with their realized utility. Traders who fail to trade continue in the market to be rematched. We characterize the steady‐state equilibria that are perfect Bayesian. We show that, as δ converges to zero, equilibrium prices at which trades occur converge to the Walrasian price and the realized allocations converge to the competitive allocation. We also show the existence of equilibria for δ sufficiently small, provided the discount rate is small relative to the participation costs.     

When Opportunity Matters: Comparing the Risk‐Taking Attitudes of Prisoners and Recently Released Ex‐Prisoners

Risk‐taking tendencies and environmental opportunities to commit crime are two key features in understanding criminal behavior. Upon release from prison, ex‐prisoners have a much greater opportunity to engage in risky activity and to commit criminal acts. We hypothesized that ex‐prisoners would exhibit greater risk‐taking tendencies compared to prisoners who have fewer opportunities to engage in risky activity and who are monitored constantly by prison authorities. Using cumulative prospect theory to compare the risky choices of prisoners and ex‐prisoners our study revealed that ex‐prisoners who were within 16 weeks of their prison release made riskier choices than prisoners. Our data indicate that previous studies comparing prisoners behind bars with nonoffenders may have underestimated the risk‐taking tendencies of offenders. The present findings emphasize the central role played by risk‐taking attitudes in criminal offending and highlight a need to examine offenders after release from prison.     

The Value of a Statistical Life for Risk‐Averse and Risk‐Seeking Individuals

This article estimates the value of a statistical life (VSL) for Chile under the hedonic wage method while accounting for individual risk preferences. Two alternative measures of risk aversion are used. First, risk aversion is directly measured using survey measures of preferences over hypothetical gambles, and second, over observed individual behaviors that may proxy for risk preferences, such as smoking status, are used. I reconcile the results with a theoretical model of economic behavior that predicts how the wage‐risk tradeoff changes as risk aversion differs across individuals. The VSL estimates range between 0.61 and 8.68 million dollars. The results using smoking behavior as a proxy for risk attitudes are consistent with previous findings. However, directly measuring risk aversion corrects the wage‐risk tradeoff estimation bias in the opposite direction. The results are robust to other observed measures of risk aversion such as drinking behavior and stock investments. Results suggest that, consistent with the literature that connects smoking behavior with labor market outcomes, smoking status could be capturing poor health productivity effect in addition to purely risk preferences.     

Terrorism Risks and Cost‐Benefit Analysis of Aviation Security

We evaluate, for the U.S. case, the costs and benefits of three security measures designed to reduce the likelihood of a direct replication of the 9/11 terrorist attacks. To do so, we assess risk reduction, losses, and security costs in the context of the full set of security layers. The three measures evaluated are installed physical secondary barriers (IPSB) to restrict access to the hardened cockpit door during door transitions, the Federal Air Marshal Service (FAMS), and the Federal Flight Deck Officer (FFDO) Program. In the process, we examine an alternate policy measure: doubling the budget of the FFDO program to $44 million per year, installing IPSBs in all U.S. aircraft at a cost of $13.5 million per year, and reducing funding for FAMS by 75% to $300 million per year. A break‐even cost‐benefit analysis then finds the minimum probability of an otherwise successful attack required for the benefit of each security measures to equal its cost. We find that the IPSB is costeffective if the annual attack probability of an otherwise successful attack exceeds 0.5% or one attack every 200 years. The FFDO program is costeffective if the annual attack probability exceeds 2%. On the other hand, more than two otherwise successful attacks per year are required for FAMS to be costeffective. A policy that includes IPSBs, an increased budget for FFDOs, and a reduced budget for FAMS may be a viable policy alternative, potentially saving hundreds of millions of dollars per year with consequences for security that are, at most, negligible.     

An Empirical Analysis of the Effect of Supply Chain Disruptions on Long‐Run Stock Price Performance and Equity Risk of the Firm

This paper investigates the long‐term stock price effects and equity risk effects of supply chain disruptions based on a sample of 827 disruption announcements made during 1989–2000. Stock price effects are examined starting one year before through two years after the disruption announcement date. Over this time period the average abnormal stock returns of firms that experienced disruptions is nearly –40%. Much of this underperformance is observed in the year before the announcement, the day of the announcement, and the year after the announcement. Furthermore, the evidence indicates that firms do not quickly recover from the negative effects of disruptions. The equity risk of the firm also increases significantly around the announcement date. The equity risk in the year after the announcement is 13.50% higher when compared to the equity risk in the year before the announcement.     

Benefactors and Beneficiaries: The Effects of Giving and Receiving on Cost‐Coalitional Problems

Motivated by supply chain collaborations in practice, we introduce a class of cost‐coalitional problems, which are based on a priori information about the cost faced by each agent in each set that it could belong to. Our focus is on problems with decreasingly monotonic coalitional costs. In this class of problems, we study the effects of giving and receiving when there exist players whose participation in an alliance always contributes to the savings of all alliance members (we refer to these players as benefactors), and there also exist players whose cost decreases in such an alliance (we call them beneficiaries). We use linear and quadratic norm cost games to analyze the role played by benefactors and beneficiaries in achieving stability of different cooperating alliances. We consider different notions of stability (the core and the bargaining set) and provide conditions for stability of an all‐inclusive alliance of agents which leads to minimum value of total cost incurred by all agents.     

The Cry Wolf Effect and Weather‐Related Decision Making

Despite improvements in forecasting extreme weather events, noncompliance with weather warnings among the public remains a problem. Although there are likely many reasons for noncompliance with weather warnings, one important factor might be people's past experiences with false alarms. The research presented here explores the role of false alarms in weather‐related decision making. Over a series of trials, participants used an overnight low temperature forecast and advice from a decision aid to decide whether to apply salt treatment to a town's roads to prevent icy conditions or take the risk of withholding treatment, which resulted in a large penalty when freezing temperatures occurred. The decision aid gave treatment recommendations, some of which were false alarms, i.e., treatment was recommended but observed temperatures were above freezing. The rate at which the advice resulted in false alarms was manipulated between groups. Results suggest that very high and very low false alarm rates led to inferior decision making, but that lowering the false alarm rate slightly did not significantly affect compliance or decision quality. However, adding a probabilistic uncertainty estimate in the forecasts improved both compliance and decision quality. These findings carry implications about how weather warnings should be communicated to the public.     

The Benefits and Costs of New Fuels and Engines for Light‐Duty Vehicles in the United States

Rising oil prices and concerns about energy security and climate change are spurring reconsideration of both automobile propulsion systems and the fuels that supply energy to them. In addition to the gasoline internal combustion engine, recent years have seen alternatives develop in the automotive marketplace. Currently, hybrid‐electric vehicles, advanced diesels, and flex‐fuel vehicles running on a high percentage mixture of ethanol and gasoline (E85) are appearing at auto shows and in driveways. We conduct a rigorous benefit‐cost analysis from both the private and societal perspective of the marginal benefits and costs of each technology—using the conventional gasoline engine as a baseline. The private perspective considers only those factors that influence the decisions of individual consumers, while the societal perspective accounts for environmental, energy, and congestion externalities as well. Our analysis illustrates that both hybrids and diesels show promise for particular light‐duty applications (sport utility vehicles and pickup trucks), but that vehicles running continuously on E85 consistently have greater costs than benefits. The results for diesels were particularly robust over a wide range of sensitivity analyses. The results from the societal analysis are qualitatively similar to the private analysis, demonstrating that the most relevant factors to the benefit‐cost calculations are the factors that drive the individual consumer's decision. We conclude with a brief discussion of marketplace and public policy trends that will both illustrate and influence the relative adoption of these alternative technologies in the United States in the coming decade.     

Human and Nature‐Caused Hazards: The Affect Heuristic Causes Biased Decisions

People are more concerned about the negative consequences of human hazards compared with natural hazards. Results of four experiments show that the same negative outcome (e.g., number of birds killed by an oil spill) was more negatively evaluated when caused by humans than when caused by nature. Results further show that when identical risk information was provided, participants evaluated nuclear power more negatively compared with solar power. The affect associated with the hazard per se influenced the interpretation of the new information. Furthermore, the affect experienced in the situation fully mediated the evaluation of the negative outcomes of a hazard. People's reliance on the affect heuristic is a challenge for acceptance of cost‐benefit analyses because equally negative outcomes are differently evaluated depending on the cause. Symbolically significant information and the affect evoked by this information may result in biased and riskier decisions.     

Defining Problems Fast and Slow: The U‐shaped Effect of Problem Definition Time on Project Duration

This study examines how time spent in problem definition affects problem solving in projects such as Six Sigma projects. Our hypotheses are tested using data collected from 1558 Six Sigma projects in a company. The results show evidence of a U‐shaped relationship between the amount of time spent in the Define phase and project duration. This finding suggests that spending too little time on problem definition potentially causes poor problem formulation, which leads to deficient problem solving and lengthens overall project time. On the other hand, too much time spent on problem definition can lead to unneeded delays in project completion due to diminishing returns on problem definition efforts. Furthermore, the optimal balance between spending too little and too much time depends on prior project experience and project complexity. Prior project experience reduced project completion time and weakened the U‐shaped effect. Conversely, complex projects took longer and appeared to show some evidence of a stronger U‐shaped effect; this suggests balancing the time spent in the Define phase was more challenging for complex projects. Our study also underscores the importance of managing project duration, as projects that were completed faster tended to be associated with higher project savings.     

Risk Perception and Information Processing: The Development and Validation of a Questionnaire to Assess Self‐Reported Information Processing

The role of information processing in understanding people's responses to risk information has recently received substantial attention. One limitation of this research concerns the unavailability of a validated questionnaire of information processing. This article presents two studies in which we describe the development and validation of the Information‐Processing Questionnaire to meet that need. Study 1 describes the development and initial validation of the questionnaire. Participants were randomized to either a systematic processing or a heuristic processing condition after which they completed a manipulation check and the initial 15‐item questionnaire and again two weeks later. The questionnaire was subjected to factor reliability and validity analyses on both measurement times for purposes of cross‐validation of the results. A two‐factor solution was observed representing a systematic processing and a heuristic processing subscale. The resulting scale showed good reliability and validity, with the systematic condition scoring significantly higher on the systematic subscale and the heuristic processing condition significantly higher on the heuristic subscale. Study 2 sought to further validate the questionnaire in a field study. Results of the second study corresponded with those of Study 1 and provided further evidence of the validity of the Information‐Processing Questionnaire. The availability of this information‐processing scale will be a valuable asset for future research and may provide researchers with new research opportunities.