Shuya Yin

Price and Order Postponement in a Decentralized Newsvendor Model with Multiplicative and Price-Dependent Demand

We analyze the effect of price and order postponement in a decentralized newsvendor model with multiplicative and price-dependent demand, wherein the manufacturer sets the wholesale price, and possibly offers a buyback rate, and the retailer determines the order quantity and retail price. Such postponement strategies can be used by the retailer by delaying his operational decisions (order quantity and retail price) until after demand uncertainty is observed. We show how the equilibrium values of the contract parameters and profits are affected by (i) vertical competition, (ii) type of contract (wholesale price-only or buyback), (iii) demand distribution, (iv) form of the expected demand function, and (v) the timing of the retailers operational decisions. Although in most cases postponement is quite beneficial for the channel members, we show that for some model parameters, due to vertical competition, the expected value of perfect information about demand for price postponement and order postponement may be negative for the channel and even, surprisingly, for both members. We also show that when a buyback option is offered, neither order postponement nor price postponement has an effect on the equilibrium wholesale price, profit allocation ratio between the manufacturer and the retailer, and channel efficiency, and that the equilibrium wholesale price, expected retail price, profit allocation ratio between the manufacturer and the retailer, and channel efficiency in the model with buyback options under either order or price postponement further coincide with their counterparts in the corresponding deterministic model.

Durable Products with Multiple Used Goods Markets: Product Upgrade and Retail Pricing Implications

Used goods markets are currently important transaction channels for durable products. For some durable products, such markets first appeared when retailers started buying back used products from “old” customers and selling them to new ones for a profit (retail used goods market). The growth of electronic peer-to-peer (P2P) markets opened up a second, frictionless used goods channel where new customers can buy used products directly from old customers (P2P used goods market). Both these markets compete with the original primary market where retailers sell unused products procured from the manufacturer. This paper focuses on understanding the role that the sequential emergence of the above two used goods markets plays in shaping the product upgrade strategy of the manufacturer and the pricing strategy of the primary market retailer in the context of a decentralized, dyadic channel dealing with a renewable set of consumers. Our analysis establishes that frequent product upgrades and rising retail prices in durable product sectors of our interest are due to the emergence of the P2P used goods market and how the market interacts with the retail used goods source in altering the relative powers of the channel partners. Moreover, contrary to popular belief, we show that the initial introduction of the retail used goods channel actually discourages introduction of new versions and restrains the rise in retail prices. We also comment on how the two used goods markets affect the profits of the channel partners. We then provide empirical support for our theoretical result regarding product upgrades using data from the college textbook industry, a durable product that fits our model setup.

On sequential commitment in the price-dependent newsvendor model

Abstract We investigate the effect of sequential commitment in the decentralized newsvendor model with price-dependent demand. Sequential commitment allows the self-profit maximizing parties to commit to contract parameters (e.g., wholesale price, retail price, buyback price and order quantity) sequentially and alternately, and we investigate its effect on the equilibrium profits of the channel and its members. Sequential commitment introduces more flexibility to contracting in the supply chain and our analysis can provide some insight to channel members who follow a bargaining process to determine the values of contract parameters. We show that the introduction of sequential commitment to the price-dependent (PD) newsvendor model with buybacks can significantly improve the manufacturer’s and the channel expected profits, but it can also decrease the retailer’s expected profit. Finally, we demonstrate that with sequential commitment, under some conditions, the choice of the first mover is endogenized and we identify the unique sequence of commitments by channel members that would arise in equilibrium.

Returns Policies Between Channel Partners for Durable Products

Many durable products with relatively short selling seasons have been using returns policies between manufacturers and retailers as the contractual protocol for some time. Recently, these sectors have witnessed the growing popularity of peer-to-peer Web-based used goods markets as important transaction channels between buyers and sellers. Given that these two issues are critically linked from both supply and demand perspectives, in this paper we study the role that consumer valuation of used products plays in shaping a manufacturers incentive to offer a returns policy option to a retailer when used goods might be devalued compared to new ones as a result of physical deterioration or obsolescence. We do so through a two-period dyadic channel framework where the retailer faces uncertain demand for a durable product from a renewable set of customers who are impatient but forward looking. The manufacturer, on the other hand, needs to decide whether or not to offer a returns contract to the retailer. We first characterize the necessary and sufficient condition under which a returns contract is the equilibrium strategy as well as the corresponding channel decisions. Further analysis of this condition reveals that a higher consumer valuation of used products increases the likelihood of a returns contract being the equilibrium strategy. This result seems to be robust except when the potential demands for the two periods are quite deterministic and uncorrelated. However, it contradicts the burgeoning managerial trend to replace returns contracts with price-only ones in sectors where used goods are valued relatively highly by the consumers. We also discuss how used goods markets affect the equilibrium channel decisions as well as how demand uncertainty and logistics costs associated with returns influence the equilibrium contracting strategy.

Impact of an "online-to-store" channel on demand allocation, pricing and profitability

The growth of e-commerce in the past decade has opened the door to a new and exciting opportunity for retailers to better target different segments of the customer population. In this paper, we develop an analytical framework to study the impact of an “online-to-store” channel on the demand allocations and profitability of a retailer who sells products to customers through multiple distribution channels. This new channel can help the retailer tap new customer segments and generate additional demand, but may also hurt the retailer by cannibalizing existing channels and increasing operating costs. The analytical model allows us to evaluate these fundamental tradeoffs and provide useful managerial insights regarding the specific product and market characteristics that are most conducive for increasing profitability. Our analysis provides some simple conditions under which adding an online-to-store channel would lead to higher profits for products that are only available online. If the product is also available in-store, the analysis becomes more complex. In this case, we performed numerical experiments to generate insights on when the OS channel should be used. Our results imply that the retailer needs to carefully select the set of products to be offered through the online-to-store channel.

ATM PRICING AND LOCATION GAMES IN THE RETAIL BANKING INDUSTRY

This paper studies a competitive Hotelling-style market with two symmetric banks that decide the pricing and location of their automated teller machines (ATMs). Two different systems are considered: An unregulated model wherein banks are allowed to set surcharges, and a regulated model in which surcharges are banned. We derive equilibrium outcomes and compare them in the two systems, and find that banks always maintain a certain distance between ATMs. That distance is larger, indeed maximized, under the regulatory scheme. We also show that, surprisingly, banks always perform better in the regulated model, while consumers may be worse off.

Implications of "online-to-store" on retailers' pricing strategy and consumers' demand allocation

As internet retailing has become increasingly prevalent, firms have continued to innovate by adopting multi-channel strategies. One of these innovations is the introduction of a distribution channel, commonly known as site-to-store or online-to-store, where consumers can purchase online and pick up in-store. In this project, our focus is on understanding the effects of the site-to-store channel on the retailers pricing strategy, profitability, and demand realization.

Returns Policies Between Channel Partners for Durable Products With Used Goods Markets

Many durable products with relatively short selling seasons have been using returns policies between manufacturers and retailers as the contractual protocol for quite some time. More recently, these sectors have witnessed the emergence of peer-to-peer (P2P) web-based used goods markets as important transaction channels between buyers and sellers. Given that these two issues are critically linked from both supply and demand perspectives, in this paper, we study what role the strength of the used goods market plays in shaping a manufacturers incentive to offer a returns policy option to a retailer. We do so through a two-period dyadic channel framework where the retailer faces uncertain demand for a durable product from a renewable set of customers and the manufacturer needs to decide whether or not to offer a returns contract to the retailer. Analyzing the resulting game for customers who do not consider a wait-and-buy option, we first characterize the necessary and sufficient condition under which a returns contract is the equilibrium contracting strategy as well as the corresponding channel decisions and profits. Further analysis of this condition reveals that a stronger used goods market generally increases the likelihood of a returns policy contract to be the equilibrium strategy. Indeed, this result seems to be quite robust to modeling assumptions. However, it contradicts the burgeoning managerial trend to replace such contracts with price-only ones for products with strong used goods markets. We also discuss how used goods markets affect the equilibrium channel decisions as well as how demand uncertainty and logistics costs associated with returns influence the equilibrium contracting strategy. Finally, we extend our model framework to include forward-looking customers, i.e., customers who take into account the wait-and-buy option, and show that the viability of a returns policy is negatively impacted by such behavior.