Kinshuk Jerath

The Impact of

AbstractPurpose To investigate whether new classesof glaucoma medication have influencedglaucoma filtration surgery over a 20-yearperiod in the southeast region of Ireland.Methods All patients undergoing glaucomafiltration surgery between January 1986 andDecember 2005 in Waterford RegionalHospital were identified. The following datawere recorded for each patient: age; sex; andtype of filtration procedure.Results Over the 20-year study period twoconsultant ophthalmic surgeons performed atotal of 760 glaucoma filtration procedures onpatients aged over 20 years. The annualaverage number of glaucoma surgeriesdeclined steadily, defined by availability ofdifferent topical anti-glaucoma medications,from an average of 23.75 surgeries per surgeonper year in the subperiod 1986–1995, to 21 in1996, 20 in 1997, and 12.69 surgeries persurgeon per year in 1998–2005, thesedifferences being statistically significant(general linear model, Po0.001). The ageprofile of patients did not change significantlyover the course of the study period.Conclusions The volume of patientsrequiring glaucoma filtration surgery underthe care of two consultant ophthalmicsurgeons decreased over the 20-year studyperiod, an era in which three classes of anti-glaucoma medications were made available.However, an increase in the age profile ofpatients undergoing glaucoma filtrationsurgery during the same period was notobserved. Further study is required to resolvewhether introduction of the new topicalanti-glaucoma medications has led to a realreduction in the demand for glaucomafiltration surgery, or has just led to the deferralof such a demand.Eye (2009) 23, 1675–1680; doi:10.1038/eye.2008.335;published online 31 October 2008Keywords: glaucoma medication; geographic;trabeculectomyIntroductionGlaucoma, one of the most common causes ofblindness worldwide, may be defined as ‘acharacteristic form of optic neuropathy, withsome regard to intraocular pressure.’

Revenue Management with Strategic Customers: Last-Minute Selling and Opaque Selling

Companies in a variety of industries (e.g., airlines, hotels, theaters) often use last-minute sales to dispose of unsold capacity. Although this may generate incremental revenues in the short term, the long-term consequences of such a strategy are not immediately obvious: More discounted last-minute tickets may lead to more consumers anticipating the discount and delaying the purchase rather than buying at the regular (higher) prices, hence potentially reducing revenues for the company. To mitigate such behavior, many service providers have turned to opaque intermediaries, such as Hotwire.com, that hide many descriptive attributes of the service (e.g., departure times for airline tickets) so that the buyer cannot fully predict the ultimate service provider. Using a stylized economic model, this paper attempts to explain and compare the benefits of last-minute sales directly to consumers versus through an opaque intermediary. We utilize the notion of rational expectations to model consumer purchasing decisions: Consumers make early purchase decisions based on expectations regarding future availability, and these expectations are correct in equilibrium. We show that direct last-minute sales are preferred over selling through an opaque intermediary when consumer valuations for travel are high or there is little service differentiation between competing service providers, or both; otherwise, opaque selling dominates. Moreover, contrary to the usual belief that such sales are purely mechanisms for disposal of unused capacity, we show that opaque selling becomes more preferred over direct last-minute selling as the probability of having high demand increases. When firms randomize between opaque selling and last-minute selling strategies, they are increasingly likely to choose the opaque selling strategy as the probability of high demand increases. When firms with unequal capacities use the opaque selling strategy, consumers know more clearly where the opaque ticket is from and the efficacy of opaque selling decreases.

Store-Within-a-Store

In a store-within-a-store arrangement, retailers essentially rent out retail space to manufacturers and give them complete autonomy over retail decisions, such as pricing and in-store service. This intriguing retailing format appears in an increasing number of large department stores worldwide. The authors use a theoretical model to investigate the economic incentives a retailer faces when deciding on this arrangement. The retailers trade-off is between channel efficiency and interbrand competition, moderated by returns to in-store service and increased store traffic. The retailer cannot credibly commit to the retail prices and service levels that the manufacturers effect in an integrated channel, so it decides instead to allow them to set up stores within its store. Thus, the stores-within-a-store phenomenon emerges when a powerful retailer, ironically, gives manufacturers autonomy in its retail space. An extension of the model to the case of competing retailers shows that the store-within-a-store arrangement can moderate interstore competition.

New Perspectives on Customer “Death” Using a Generalization of the Pareto/NBD Model

Several researchers have proposed models of buyer behavior in noncontractual settings that assume that customers are “alive” for some period of time and then become permanently inactive. The best-known such model is the Pareto/NBD, which assumes that customer attrition (dropout or “death”) can occur at any point in calendar time. A recent alternative model, the BG/NBD, assumes that customer attrition follows a Bernoulli “coin-flipping” process that occurs in “transaction time” (i.e., after every purchase occasion). Although the modification results in a model that is much easier to implement, it means that heavy buyers have more opportunities to “die.” In this paper, we develop a model with a discrete-time dropout process tied to calendar time. Specifically, we assume that every customer periodically “flips a coin” to determine whether she “drops out” or continues as a customer. For the component of purchasing while alive, we maintain the assumptions of the Pareto/NBD and BG/NBD models. This periodic death opportunity (PDO) model allows us to take a closer look at how assumptions about customer death influence model fit and various metrics typically used by managers to characterize a cohort of customers. When the time period after which each customer makes her dropout decision (which we call period length) is very small, we show analytically that the PDO model reduces to the Pareto/NBD. When the period length is longer than the calibration period, the dropout process is “shut off,” and the PDO model collapses to the negative binomial distribution (NBD) model. By systematically varying the period length between these limits, we can explore the full spectrum of models between the “continuous-time-death” Pareto/NBD and the naive “no-death” NBD. In covering this spectrum, the PDO model performs at least as well as either of these models; our empirical analysis demonstrates the superior performance of the PDO model on two data sets. We also show that the different models provide significantly different estimates of both purchasing-related and death-related metrics for both data sets, and these differences can be quite dramatic for the death-related metrics. As more researchers and managers make managerial judgments that directly relate to the death process, we assert that the model employed to generate these metrics should be chosen carefully.

Agency Selling or Reselling? Channel Structures in Electronic Retailing

In recent years, online retailers (also called e-tailers) have started allowing manufacturers direct access to their customers while charging a fee for providing this access, a format commonly referred to as agency selling. In this paper, we use a stylized theoretical model to answer a key question that e-tailers are facing: When should they use an agency selling format instead of using the more conventional reselling format? We find that agency selling is more efficient than reselling and leads to lower retail prices; however, the e-tailers end up giving control over retail prices to the manufacturer. Therefore, the reaction by the manufacturer, who makes electronic channel pricing decisions based on their impact on demand in the traditional channel (brick-and-mortar retailing), is an important factor for e-tailers to consider. We find that when sales in the electronic channel lead to a negative effect on demand in the traditional channel, e-tailers prefer agency selling, whereas when sales in the electronic channel lead to substantial stimulation of demand in the traditional channel, e-tailers prefer reselling. This preference is mediated by competition between e-tailers—as competition between them increases, e-tailers prefer to use agency selling. We also find that when e-tailers benefit from positive externalities from the sales of the focal product (such as additional profits from sales of associated products), retail prices may be lower under reselling than under agency selling, and the e-tailers prefer reselling under some conditions for which they would prefer agency selling without the positive externalities. This paper was accepted by Chris Forman, information systems.

Competitive Poaching in Sponsored Search Advertising and Its Strategic Impact on Traditional Advertising

Traditional advertising, such as TV and print advertising, primarily builds awareness of a firms product among consumers, whereas sponsored search advertising on a search engine can target consumers closer to making a purchase because they reveal their interest by searching for a relevant keyword. Increased consumer targetability in sponsored search advertising induces a firm to “poach” a competing firms consumers by directly advertising on the competing firms keywords; in other words, the poaching firm tries to obtain more than its “fair share” of sales through sponsored search advertising by free riding on the market created by the firm being poached. Using a game theory model with firms of different advertising budgets, we study the phenomenon of poaching, its impact on how firms allocate their advertising budgets to traditional and sponsored search advertising, and the search engines policy on poaching. We find that, as budget asymmetry increases, the smaller-budget firm poaches more on the keywords of the larger-budget firm. This may induce the larger-budget firm to allocate more of its budget to traditional advertising, which, in turn, hurts the search engines advertising revenues. Therefore, paradoxically, even though poaching increases competition in sponsored search advertising, the search engine can benefit from limiting the extent of poaching. This explains why major search engines use “ad relevance” measures to handicap poaching on trademarked keywords.

Selling to Strategic Customers: Opaque Selling Strategies

Over the past few years, firms in the travel and entertainment industries have begun using novel sales strategies for revenue management. In this chapter, we study a selling strategy called opaque selling, in which firms guarantee one of several fully specified products, but hide the identity of the product that the consumer will actually obtain until after the purchase is completed. Several firms such as Hotwire, Priceline, and Mystery Flights engage in opaque selling of travel products. The academic literature in this area is recent and evolving. We first survey the nascent literature on opaque selling strategies. After presenting the current state of theory and practice, we analyze in-depth a model of competing firms selling horizontally differentiated products through an opaque channel. Consumers strategically time their purchases by developing rational expectations about future availability in the opaque market, keeping in mind that demand is uncertain and product supply could be limited. This model helps illustrate the conditions under which opaque selling can increase firm profits. We conclude the chapter by discussing ongoing research and charting out future research directions.

Cross-Market Discounts

Firms in several markets attract consumers by offering discounts in other unrelated markets. This promotion strategy, which we call “cross-market discounts,” has been successfully adopted in the last few years by many grocery retailers in partnership with gasoline retailers across North America, Europe, and Australia. In this paper, we use an analytical model to investigate the major forces driving the profitability of this novel promotion strategy. We consider a generalized scenario in which purchases in a source market lead to price discounts redeemable in a target market. Our analysis shows that this strategy can be a revenue driver by simultaneously increasing prices as well as sales in the source market, even though we assume the demand curve to be downward sloping in price. Moreover, it distributes additional consumption (motivated by the discount) in two markets, and under diminishing marginal returns from consumption, this can simultaneously increase firm profits and consumer welfare more effectively than traditional nonlinear pricing strategies. Our study provides many other interesting insights as well, and our key results are in accordance with anecdotal evidence obtained from managers and industry publications.

Product Quality in a Distribution Channel With Inventory Risk

In many industries, product design and manufacturing lead-times are sufficiently long that both the quality level of a product and the amount of inventory produced must be determined well before a firm knows what the actual demand will be. On the other hand, price is typically adjusted dynamically in response to observed demand. In this paper, we conduct a generalized theoretical analysis of such a setting. We first consider a centralized channel and characterize the optimal decisions by establishing relationships that must hold between the elasticity of cost of quality and the elasticity of revenue, show that quality and inventory are substitutes, and more- over show that quality rather than inventory can be a primary lever to mitigate the impact of demand uncertainty. Next, we consider a decentralized channel, in which a manufacturer deter- mines quality and contractual terms, while a retailer determines inventory and retail price. We find that the channel is not coordinated under the optimal wholesale price contract and, counter to standard intuition, product quality can be higher compared to a centralized channel because a simple wholesale price contract shields the manufacturer from inventory risk. We then examine two more sophisticated contracts: quantity discounts and buyback contracts. For the former, we derive the optimal quantity discount schedule, show that it can coordinate the channel even in the presence of joint decisions on quality, inventory and responsive pricing, and determine how it varies as the product and market characteristics change. For the latter, we show that buyback contracts can coordinate the channel only if the manufacturer can specify retail price ceilings that depend on the realized demand outcome, which is an unrealistic contracting instrument. We thus conclude that the contracts that are more likely to be implemented in practice in settings similar to our own are wholesale price contracts (because of their simplicity) and quantity discount con- tracts (because they offer a robust and implementable mechanism to coordinate the channel, with moderate complexity); this is consistent with observations from industry.

Keyword Management Costs and “Broad Match” in Sponsored Search Advertising

In sponsored search advertising, advertisers bid to be displayed in response to a keyword search. The operational activities associated with participating in an auction, i.e., submitting the bid and the ad copy, customizing bids and ad copies based on various factors (such as the geographical region from which the query originated, the time of day and the season, the characteristics of the searcher), and continuously measuring outcomes, involve considerable effort. We call the costs that arise from such activities keyword management costs . To reduce these costs and increase advertisers’ participation in keyword auctions, search engines offer an opt-in tool called broad match with automatic and flexible bidding , wherein the search engine automatically places bids on behalf of the advertisers and takes over the above activities as well. The bids are based on the search engine’s estimates of the advertisers’ valuations and, therefore, may be less accurate than the bids the advertisers would have turned in themselves. Using a game-theoretic model, we examine the strategic role of keyword management costs, and of broad match, in sponsored search advertising. We show that because these costs inhibit participation by advertisers in keyword auctions, the search engine has to reduce the reserve price, which reduces the search engine’s profits. This motivates the search engine to offer broad match as a tool to reduce keyword management costs. If the accuracy of broad match bids is sufficiently high, advertisers adopt broad match and benefit from the cost reduction, whereas if the accuracy is very low, advertisers do not use it. Interestingly, at moderate levels of bid accuracy, advertisers individually find it attractive to reduce costs by using broad match, but competing advertisers also adopt broad match and the increased competition hurts all advertisers’ profits, thus creating a “prisoner’s dilemma.” When advertisers adopt broad match, search engine profits increase. It therefore seems natural to expect that the search engine will be motivated to improve broad match accuracy. Our analysis shows that the search engine will increase broad match accuracy up to the point where advertisers choose broad match, but that increasing the accuracy any further reduces the search engine’s profits.