Danko Turcic

National Brand's Response to Store Brands: Throw In the Towel or Fight Back?

Nearly a quarter of all products purchased in U.S. supermarkets and drug stores are store brands SBs. Although the presence of SBs benefits both consumers and retailers, it is a threat to the dominance of the incumbent national brand manufacturers NBMs. When considering the potential threat of an SB, an NBM generally pursues one of three strategies: accommodate, displace, or buffer. Under the accommodation strategy, the NBM repositions the products in his existing product line. Under the displacement strategy, the NBM elects to supply the SB to preempt the entry of the SB supplier. Under the buffering strategy, the NBM adds a defender product, which competes with his own product offering and the new SB. Using a game-theoretic model, we consider a market where consumers are heterogeneous in their valuation of product quality and analyze an NBMs response to an SB threat. We focus on two important drivers: the NBMs ability to differentiate on the quality dimensions and his cost advantage over the outside supplier of SB. To completely characterize the NBMs response, we consider two regimes. In the first regime, the NBM is a monopolist producer. In the second regime, the retailer has the added option of procuring an SB product from an independent, nonstrategic SB manufacturer. By comparing the results from both regimes, we develop a descriptive theory that clarifies the incentives of the NBM to accommodate, displace, or buffer. In doing this, we determine how the NBMs whole product portfolio should be designed, i.e., the positioning quality levels and prices of all its offerings.

Risk Aversion and Supply Chain Contract Negotiation

We employ the Nash bargaining solution to determine the value of an opportunity to negotiate a contract in an archetypal supply chain game. This unifies the allocation of payoffs and the selection of the type of contract in a bilateral supply chain; a supplier delivers goods to a news vendor retailer who stocks in anticipation of stochastic seasonal demand. Both firms have concave, ordinal utility functions which allows us to model both risk-neutrality and risk-aversion. We characterize the Nash-optimal contracts, and contrast the cases where both firms are risk-neutral and where at least one of the firms is risk-averse. Risk aversion, it turns out, has a significant impact on the contract terms and one firms risk aversion may be advantageous to the other. This suggests that each firm should strive to find a supply chain partner based on its own and its prospective partners sensitivities to risk. For example, risk-neutral firms have an incentive to avoid other risk-neutral firms as their supply chain partners.

Introduction to the Special Issue on Integrated Risk Management in Supply Chains

This special issue, which surveys the most recent research in integrated risk management for supply chains, is motivated by the success of the third “Supply Chain Finance & Risk Management Workshop,†which was held at the Olin Business School of Washington University in St. Louis, on May 14-15, 2017. The Editors wanted a more timely access to the latest research on supply chain finance and supply chain risk management. It is well-known, that due to review process lead times, articles published in traditional journals can take 2 to 3 years. The idea of producing an edited volume, which would include the latest articles on the topics above appealed not only to the workshop participants but also to other active members of the iFORM (Interface of Finance, Operations, and Risk Management) research community. Foundations and Trends in Technology, Information and Operations Management provides an ideal outlet for such a volume.

To Commit or Not to Commit: Revisiting Quantity vs. Price Competition in a Differentiated Industry

Previous studies have shown that quantity commitment by all firms in an industry mitigates price competition. This paper shows that when firms have a choice, asymmetric outcomes can arise, with some firms choosing to commit to a quantity and other firms choosing not to. To study the commitment decision, we analyze a multistage game within a duopoly of differentiated firms a la Hotelling. In the first stage of the game, firms choose whether or not to commit to a quantity. In the second stage, each firm that chose to commit sets a quantity, which represents an upper bound on how much it can sell to consumers. In the third stage, both firms set prices strategically, regardless of whether or not they committed. In the final stage, demand is allocated as consumers maximize their utilities. Firm(s) that chose not to commit to a quantity in the first stage can fulfill any quantity that consumers demand at the equilibrium prices. We find that if product differentiation is sufficiently low, both firms choose to co...

Temporary Contract Adjustment to a Retailer with a Private Demand Forecast

This paper analyzes a setting in which a manufacturer and a retailer face uncertain demand, but the retailer has an information advantage in the form of a private demand forecast. We first analyze the case when the demand forecast is common knowledge, which yields the manufacturers first-best equilibrium profits. Next, we analyze the case where the forecast is privately observed by the retailer and establish that the manufacturer incurs a hidden information cost as his equilibrium profits drop below the first-best case. Finally, we analyze the case where the manufacturer uses a temporary price discount to incentivize the retailer to purchase some quantity before she observes the forecast signal; after observing the signal, she can order more at the full (un-discounted) price. We show that by offering the retailer a temporary price discount, the manufacturer can achieve first-best profits without actually observing the demand forecast. In other words, by offering the retailer a temporary price discount, the manufacturer can achieve the same expected profits as if he observes the retailers private information, without this information being directly revealed.

Supply Chain Contracting in Environments with Volatile Input Prices and Frictions

Problem description: Purchase costs of raw materials required in production tend to fluctuate over time. Mild cost fluctuations merely affect firms’ profitability. Significant variations can lead to supply chain disruption. What are the best contracts to be used in supply chains exposed to fluctuating raw material costs? We ask this question in two contexts—in the presence and the absence of working capital constraint. Academic/practical relevance: We add a framework on how to optimally contract in the presence of stochastic costs and working capital constraints and help managers understand how they can increase profitability. Methodology: We present a game-theoretic study of a bilateral monopoly supply chain with stochastic demand, stochastic input costs, production lead times, and working capital constraints. The upstream firm announces a supply contract to which the downstream firm responds with an order quantity. The contract is a single-price, multi-instrument contract with optional default penalties...

Introduction to the Special Issue on Supply Chain Finance

This special issue, which surveys the most recent research in supply chain finance, is motivated by the success of the third “Supply Chain Finance & Risk Management Workshop,†which was held at the Olin Business School of Washington University in St. Louis, on May 14-15, 2017. The Editors wanted a more timely access to the latest research on supply chain finance and supply chain risk management. It is well-known, that due to review process lead times, articles published in traditional journals can take 2 to 3 years. The idea of producing an edited volume, which would include the latest articles on the topics above appealed not only to the workshop participants but also to other active members of the iFORM (Interface of Finance, Operations, and Risk Management) research community. Foundations and Trends in Technology, Information and Operations Management provides an ideal outlet for such a volume.