Deishin Lee

Adoption of Information Technology Under Network Effects

Because information technologies are often characterized by network effects, compatibility is an important issue. Although total network value is maximized when everyone operates in one compatible network, we find that the technology benefits for the users depend on vendor incentives, which are driven by the existence of “de facto” or “de jure” standards. In head-to-head competition, customers are better off “letting a thousand flowers bloom,” fostering fierce competition that results in a de facto standard if users prefer compatibility over individual fit, or a split market if fit is more important. In contrast, firms that sponsor these products are better off establishing an up-front, de jure standard to lessen the competitive effects of a network market. However, if a firm is able to enter the market first by choosing a proprietary/incompatible technology, it can use a “divide-and-conquer” strategy to increase its profit compared with head-to-head competition, even when there are no switching costs. When there is a first mover, the early adopters, who are “locked in” because of switching costs, never regret their decision to adopt, whereas the late adopters, who are not subject to switching costs, are exploited by the incumbent firm. In head-to-head competition, customers are unified in their preference for incompatibility when there is a first mover; late adopters prefer de jure compatibility because they bear the brunt of the first-mover advantage. This again underscores the interdependence of user net benefits and vendor strategies.

Turning Waste into By-Product

This paper studies how a firm can create and capture value by converting a waste stream into a useful and saleable by-product (i.e., implementing by-product synergy (BPS)). We show that BPS creates an operational synergy between two products that are jointly produced. In essence, BPS is a process innovation that reduces the marginal cost of the original product and/or the by-product. The firm creates value through this process innovation and can capture this value by capturing newly created market opportunities, taking market share from competitors, or licensing the innovation to its competitors. We determine the optimal operating and licensing strategies for the firm and find market conditions under which the firm would benefit most from implementing BPS. We show that the optimal operating and licensing strategies are driven by the size of the cost reduction enabled by the BPS process innovation. We also show that leveraging the synergies between the original product and by-product can lead to counterintuitive profit-maximizing operating strategies such as increasing the amount of waste generated, and strategically increasing the quantity of original product above the business as usual production volume. We present a framework for assessing the environmental impact of BPS that incorporates the impact of the optimal operating and licensing strategies.

Optimizing Organic Waste to Energy Operations

A waste-to-energy firm that recycles organic waste with energy recovery performs two environmentally beneficial functions: it diverts waste from landfills and it produces renewable energy. At the same time, the waste-to-energy firm serves and collects revenue from two types of customers: waste generators who pay for waste disposal service and electricity consumers who buy energy. Given the process characteristics of the waste-to-energy operation, the market characteristics for waste disposal and energy, and the mechanisms regulators use to encourage production of renewable energy, we determine the profit-maximizing operating strategy of the firm. We also show how regulatory mechanisms affect the operating decisions of the waste-to-energy firm. Our analyses suggest that if the social planners objective is to maximize landfill diversion, offering a subsidy as a per kilowatt-hour for electricity is more cost effective, whereas if the objective is to maximize renewable energy generation, giving a subsidy as a lump sum to offset capital costs is more effective. This has different regulatory implications for urban and rural settings where the environmental objectives may differ.

Converting retail food waste into by-product

By-product synergy (BPS) is a form of joint production that uses the waste stream from one (primary) process as useful input into another (secondary) process. The synergy is derived from avoiding waste disposal cost in the primary process and virgin raw material cost in the secondary process. BPS increases profit and can have a positive environmental impact by reducing waste. We investigate how BPS can mitigate food waste in a retail grocer setting, and how it interacts with other mechanisms for reducing waste (i.e., waste disposal fee and tax credit for food donation). In the retail setting, waste is generated because of demand uncertainty – the retailer stocks inventory without knowing demand and excess units become waste. We derive the retailer’s optimal order policy under BPS and the order policy for a more practical hybrid implementation of BPS, and compare these BPS implementations to the benchmark case where the retailer only sells fresh produce (“Fresh Only”). We show that the benefit of BPS increases in primary demand uncertainty, but decreases in secondary demand uncertainty. We find that BPS can reduce waste when secondary demand uncertainty and the net tax benefit from donation are low, but can increase waste if increased secondary demand uncertainty drives up safety stock. Our results suggest that under BPS, the threshold net tax benefit required to induce donation increases because BPS competes with donation for excess primary units. We find that the tax credit and disposal fee are substitute mechanisms for inducing food donation.

Improving Food Bank Gleaning Operations: An Application in New York State

Gleaning is increasingly attracting the attention of food safety networks, including food banks, as a valuable tool that simultaneously reduces food loss and alleviates food insecurity. However, managing gleaning operations can be challenging because the arrival of gleaning opportunities and the attendance of gleaner volunteers are both stochastic. We develop a stochastic optimization model to characterize and optimize a gleaning operation. The food bank chooses the gleaning schedule, which affects the gleaner capacity and the number of gleaning opportunities scheduled. In a specific field study of the Food Bank of the Southern Tier in New York, we analyze the tradeoff between call and volume service levels to find the optimum schedule that maximizes the expected total volume gleaned. Moreover, we find that increasing the gleaning window and increasing slot availability can be used as substitute mechanisms for increasing the total volume gleaned. Additionally, we use our model to assess the impact of recruiting more volunteer gleaners.

Mechanisms for Increasing Sourcing from Capacity-Constrained Local Suppliers†

The fresh produce supply chain is characterized by large (mainstream) farms that are located far from consumers, and capacity-constrained (local) farms that are located close to the consumer. In this setting, we study: (i) how leadtime and capacity asymmetry between mainstream and local farms affect a retail grocers order policy for fresh produce, and (ii) how various operational mechanisms can increase the amount sourced from local farms. We show that this supply chain structure is disadvantageous for local suppliers (farms) because it induces the retailer to treat the local supply as a de facto responsive supply without paying a premium for the responsiveness. This disadvantage is exacerbated when the retailers objective is to achieve a high service level. We study three mechanisms that can improve conditions for local farms: working with an intermediary, backhauling, and a retail order policy, purchase guarantee, that explicitly supports local farms. The intermediary and backhauling mechanisms help the local farm by making local supply more attractive to the retailer, inducing her to order more locally sourced produce. The intermediary reduces the retailers overstock and stockout costs whereas backhauling increases the average margin. The purchase guarantee order policy helps local farms at the expense of retail profit. However, we show that purchase guarantee and backhauling are complementary mechanisms that together can benefit the retailer and local farms.