Edieal J. Pinker

Analyzing the Simultaneous Use of Auctions and Posted Prices for Online Selling

Many firms in the business-to-consumer market sell identical products online using auctions and posted prices at the same time. In this paper, we develop and analyze a model of the key trade-offs sellers face in such a dual-channel setting built around the optimal choice of three design parameters: the posted price, the auction lot size, and the auction duration. Our results show how a monopolist seller can increase his revenues by offering auctions and a fixed price concurrently, and we identify when either a posted price only or a dual-channel strategy is optimal for the seller. We model consumer choice of channels, and thus market segmentation, and find a unique (symmetric) auction-participation equilibrium exists in which consumers who value the item for more than its posted price use a threshold policy to choose between the two channels. The threshold defines an upper bound on the remaining time of the auction. We explain how optimizing the design parameters enables the seller to segment the market so that the two channels reinforce each other and cannibalization is mitigated. Our findings also demonstrate that there are two dominant auction design strategies in this setting: one-unit auctions that tend to be short and long multiunit auctions. The optimal strategy for the seller depends on the consumer arrival rate and the disutility of delivery delay incurred by high-valuation consumers. In either case, the optimal design of the dual channel can significantly outperform a single posted-price channel. We show even greater benefits over a naive approach to managing the two channels that optimizes each independently. Our results suggest that unless firms jointly manage these online channels, they may find that adding auctions actually reduces their revenues.

Call Center Outsourcing Contracts Under Information Asymmetry

In this paper, we examine contracts to coordinate the capacity decision of a vendor who has been hired by a client to provide call center support. We consider a variety of contracts, all based on our observations of contracts used by one large vendor. We examine the role of different contract features such as pay-per-time, pay-per-call, service-level agreements, and constraints on service rates and abandonment. We show how different combinations of these contract features enable client firms to better manage vendors when there is information asymmetry about worker productivity. In particular, we focus on how different contracts can coordinate by yielding the system-optimal capacity decision by the vendor and consider how profits are allocated between the client and the vendor.

Optimizing the use of contingent labor when demand is uncertain

Abstract We develop a new model for flexible workforce management in environments with uncertainty in the demand for labor. In particular we model a workforce comprised of regular workers who have fixed schedules and may work overtime, and contingent workers whose working hours are flexible as specified by a contract over a finite planning horizon. Our model can represent a variety of contracts, including: temporary workers, on-call workers with guaranteed minimum pay, and comp-time arrangements. We formulate the model as an optimization problem that determines the regular and contingent worker pool sizes that minimize expected labor and backlog costs. Embedded within this problem is a dynamic programming problem of making optimal operational staffing decisions with respect to the utilization of contingent and overtime resources. Numerical examples demonstrate the effect that the timing of information has on the benefits of flexibility. We also derive structural results that may be exploited to reduce the computational effort required to use the model.

Contingent Labor Contracting Under Demand and Supply Uncertainty

Firms increasingly use contingent labor to flexibly respond to demand in many environments. Labor supply agencies are growing to fill this need. As a result, firms and agencies are engaging in long-term contracts for labor supply. We develop mathematical models of the interaction between firms and labor supply agencies when demand and supply are uncertain. We consider two models of labor supply uncertainty, termed productivity and availability uncertainty, and study how each affects the nature of the contracts formed. These models reflect two major roles played by the labor supply agency. In the case of productivity uncertainty we find that it is possible to construct a contract that coordinates the firm and agency hiring in an optimal way. In contrast, we show that in environments characterized by availability uncertainty, optimal contracts are not possible. However, there is a large range of contract parameters for which both parties would benefit from a contract. We analyze these and discuss the trade-offs that should be considered in contract negotiation.

A Model of ICU Bumping

Many intensive care units (ICUs) face overcrowding. One response to this overcrowding is to bump ICU patients to other departments of the hospital to make room for new patient arrivals. Such bumping clearly has the potential to reduce quality of care. In this paper we develop a stochastic model of a single ICU with patient bumping. The purpose of this model is to enable planners to predict performance, in terms of bumping, under differing arrival patterns and capacity. We develop a Markov chain model and a new aggregation-disaggregation algorithm for this problem that enables us to keep track of the time in system for each patient despite the high dimensionality of the problem. Our approach allows for more accurate modeling of the system than previous work that assumed an exponential distribution for length of stay (LOS). We also demonstrate the superior computational efficiency of our approach over the Gauss-Seidel iterative method for solving the Markov chain. Finally, we use the model to explore how different surgery schedules influence bumping rates.

Strategies for transitioning 'old economy' firms to e-business

When devising an e-business strategy for legacy firms, be wary of the five myths of e-business development while embracing the five guidelines of managerial responsibility and leadership.

An Analysis of Short-Term Responses to Threats of Terrorism

Two important defensive mechanisms available to governments combating terrorism are warnings and the deployment of physical resources. Warnings are relatively inexpensive to issue but their effectiveness suffers from false alarms. Physical deployments of trained security personnel can directly thwart attacks but are expensive and need to be targeted to specific locations. In this paper, we model the joint optimization of defenses against terrorist attacks based on warnings and physical deployments when there is uncertainty in the timing and location of attacks. We model both private warnings issued to security forces and public warnings broadcast to the general public. By structuring the trade-offs faced by decision makers in a formal way, we try to shed light on an important public policy problem. We show that the interaction between the use of warnings and physical defenses is complex and significant. For public warnings, we also model the possible response of terrorists and show how these responses influence the effectiveness of such warnings.

OM Practice---Work Expands to Fill the Time Available: Capacity Estimation and Staffing Under Parkinson's Law

We develop a method to estimate the capacity of agents who answer e-mail in a contact center, given aggregate historical data that have been distorted both by constraints on work availability and by internal incentives to slow down when true capacity exceeds demand. We use the capacity estimate to find a contact centers optimal daily staffing levels. The implementation results, from an actual contact center, demonstrate that the method provides accurate staffing recommendations. We also examine and test models in which agents exhibit speed-up behavior and in which capacity varies over time. Finally, we use the capacity estimates to examine the implications of solving the staffing problem with two different model formulations, the service-level constraint formulation used by the contact center and an alternate profit-maximization formulation.

An EOQ model for perishable goods with age-dependent demand rate

We study the inventory management decisions of a retailer selling a single perishable good in a deterministic setting. We take into account consumers’ assessment of quality over the lifetime of the products, and assume that the demand rate is a linearly decreasing function of the age of the products. We analytically obtain the optimal cycle length of the retailer. Using our model, we obtain traditional non-perishable Economic Order Quantity (EOQ)-like lower and upper bounds on the cycle length and the profit, and show that they lead to near-optimal results for our typical examples, which are grocery items. We show that a perishable good acts similarly to a non-perishable good with unit holding cost equal to the ratio of contribution margin to lifetime. We also approximate the contribution margin the perishable good needs to have to maintain profitability parity with non-perishable goods.

Division of Labor in Medical Office Practices

This paper examines the staffing, division of labor, and resulting profitability of primary care physician practices. Division of labor is viewed as a mechanism to increase the efficiency of production processes through specialization. At the same time, division of labor also introduces coordination cost as handoffs and communication needs increase. We attempt to empirically assess the net effect in primary care physician offices. We collected data from a sample of these practices and tested two hypotheses: (H1) controlling for staff size, greater delegation through the use of more staff types will decrease the throughput of visits, and (H2) controlling for staff size, income per unit time generated by the practice is decreasing in the number of staff types. We find evidence supporting both hypotheses. We conclude that many physicians are gaining little financial benefit from delegating work to support staff. This suggests that small practices with few staff may be viable alternatives to traditional practice designs.