Lode Li

Cournot Oligopoly with Information Sharing

This article examines the incentives for Cournot oligopolists to share information about a common parameter or about firm-specific parameters. We assume that the private information that firms receive has equal accuracy and obeys a linear conditional expectation property. We find that when the uncertainty is about a firm-specific parameter, perfect revelation is the unique equilibrium. When the uncertainty is about a common parameter, no information sharing is the unique equilibrium. But the nonpooling equilibrium converges to the situation where the pooling strategies are adopted as the total amount of information increases. Hence, the efficiency is achieved in the competitive equilibrium as the number of firms becomes large.

Pricing, Production, Scheduling, and Delivery-Time Competition

This paper studies competition between firms that produce goods or services for customers sensitive to delay time. Firms compete by setting prices and production rates for each type of customer and by choosing scheduling policies. The existence of a competitive equilibrium is proved. The competitive equilibrium is well defined whether or not a firm can differentiate between customers based upon physical characteristics because each customer has incentive to truthfully reveal its delay cost. Further insights are derived in two special cases. A unique equilibrium exists for each of the cases. In the first case, firms are differentiated by cost, mean processing time, and processing time variability, but customers are homogeneous. The conclusions include that a faster, lower variability and lower cost firm always has a larger market share, higher capacity utilization, and higher profits. However, this firm may have higher prices and faster delivery time, or lower prices and longer delivery time. In the second...

Confidentiality and Information Sharing in Supply Chain Coordination

We consider information sharing in a decentralized supply chain where one manufacturer supplies to multiple retailers competing in price. Each retailer has some private information about the uncertain demand function which he may choose to disclose to the manufacturer. The manufacturer then sets a wholesale price based on the information received. The information exchange is said to be confidential if the manufacturer keeps the received information to herself, or nonconfidential if she discloses the information to some or all other retailers. Without confidentiality, information sharing is not possible because it benefits the manufacturer but hurts the retailers. With confidentiality, all parties have incentive to engage in information sharing if retail competition is intense. Under confidentiality, the retailers infer the shared information from the wholesale price and this gives rise to a signaling effect that makes the manufacturers demand more price elastic, resulting in a lower equilibrium wholesale price and a higher supply chain profit. When all retailers share their information confidentially, they will truthfully report the information and the supply chain profit will achieve its maximum in equilibrium.

Subcontracting, coordination, flexibility, and production smoothing in aggregate planning

We propose a model in which subcontracting can be explicitly considered as a production planning strategy. Possible market and nonmarket subcontracting mechanisms and their costs are discussed. We show that a class of feasible subcontracting mechanisms in which firms coordinate their production via subcontracts Pareto-dominate other mechanisms. We then offer an example with quadratic cost functions and coordination subcontracts; linear decision rules for production, inventory, and subcontracting are derived. In the example, subcontracting reduces the variability in production and inventory. The same interpretation can be used for flexibility of manufacturing resources.

Price and Delivery Logistics Competition in a Supply Chain

We consider a supply chain in which two suppliers compete for supply to a customer. Pricing and delivery-frequency decisions in the system are analyzed by two three-stage noncooperative games with different decision rights designated to the parties involved. The customer first sets the price (or delivery frequency) for each supplier. Then, the suppliers offer the delivery frequencies (or prices) simultaneously and independently. Finally, the customer determines how much demand to allocate to each of the suppliers. We show that delivery frequency, similar to delivery speed in time-based competition, can be a source of competitive advantage. It also allows firms that sell identical products to offer complementary services to the customer because she can lower her inventory with deliveries from more suppliers. In general, higher delivery frequencies lower the value of getting deliveries from the second supplier and therefore intensify price competition. Assuming the cost structures do not change and the suppliers are identical, we show that when the customer controls deliveries, she would strategically increase delivery frequencies to lower prices. The distortion in delivery frequencies is larger and the overall performance of the supply chain is lower when the customer, not the suppliers, controls deliveries. Moreover, the customer is better off under delivery competition, while the suppliers are better off under price competition.

Optimal research for cournot oligopolists

We extend the classical Cournot model to take account of uncertainty in either the cost function or the demand function. By undertaking research, firms can acquire private (asymmetric) information to help resolve their uncertainty and make a more informed production decision. The model is a two stage game: in the first stage research levels are chosen, and in the second stage, conditional on private research outcomes, production decisions are made. We find that for a linear, continuous information structure there is a unique Nash equilibrium to the game. In the equilibrium there may be an inefficient amount of aggregate research and there may be incomplete pooling as well. The model specializes to the classical case when the cost of research is zero (and each firm gains essentially the same information by doing an infinite amount of research) or when the cost of research is so high no firm undertakes research.

A stochastic theory of the firm

We present a stochastic model of make-to-stock firms based on a buffer flow system with jumps. The cumulative production and the cumulative demand are governed by two Poisson counting processes with random intensities parameterized by production capacity and price respectively. Optimal operating and pricing policies short-run decisions and optimal capacity long-run decisions are explored by application of a two-stage optimization device. Detailed computations regarding the Poisson buffer flow system and a variation on the basic model with learning effects are also presented.

Equilibrium exit in stochastically declining industries

Abstract We study a complete information model of exit for an industry in stochastic decline. We characterize the entire set of pure strategy subgame-perfect equilibria for the exit game. In general, there are multiple subgame-perfect equilibria of our exit game, in contrast to several papers in the literature. Relaxing an assumption in those models (arguably in the direction of more realism) will give multiple equilibria in those models also. We provide (fairly restrictive) necessary and sufficient conditions for there to be a unique subgame-perfect equilibrium.

Supply Chain Information Sharing in a Competitive Environment

The subject of information sharing has regained the interests of both academics and practitioners. Today a huge amount of information is being interchanged between manufacturers and retailers, between retailers and consumers, between companies and investors, and also among the parties in the same level of a vertical chain. How to measure the gains and losses of such activities to the parties involved is an important issue in supply chain management. This chapter studies the incentives for firms to share information vertically in the presence of horizontal competition. We do so in a setting with one manufacturer and many competing retailers where each retailer possesses some private information about the downstream market demand or about its own cost. Horizontal competition in the downstream brings about new effects of information sharing. In general, vertical information sharing, e.g., transmission of pointof-sales data between a retailer and a manufacturer, has two effects, the “direct effect” on the payoffs between the parties engaged in information sharing, and the “indirect effect” of information sharing on other competing firms. For example, knowing that the manufacturer receives some information from a retailer, other retailers may respond to the fact by changing their strategies, and such reaction may cause additional gains or losses to the parties directly engaged in information sharing.

Continuous time stopping games with monotone reward structures

We prove the existence of a Nash equilibrium for a class of continuous time stopping games when certain monotonicity conditions are satisfied.