The value of losing control: Competition in markets for complements

When selling complementary products, manufacturers can often benefit from considering the resulting cross‐market interdependencies. Although using independent retailers makes it difficult to internalize these positive externalities, the ensuing double marginalization can mitigate within‐market competition. We use standard game theoretic analysis to determine optimal distribution channel strategies (through independent retailers or integrated) for competing manufacturers who participate in markets for complements. Our results suggest that a firm's optimal channel choice is highly dependent on its competitive positioning. A firm with a competitive advantage in terms of product characteristics (customer preferences) or production capabilities (cost) might benefit from selling through company‐controlled stores, allowing coordinated pricing across the two markets, whereas a less competitive firm might be better off using independent channel intermediaries to mitigate price competition. We consider two scenarios depending on whether the two firms make their distribution channel decisions sequentially or simultaneously. Although firms are unlikely to make such decisions at exactly the same instant, the simultaneous model also serves as a proxy for the scenario where firms decide sequentially, but where they cannot observe each other's strategic channel choices. For the sequential case, we find that the sequence of entry can have tremendous impact on the two firms'profits; whereas in some cases, the first mover can achieve substantially higher profits, we find that when the two markets are of sufficiently different size and only loosely related, a firm with a competitive advantage might be better off as a follower. Interestingly, our results suggest that, when the markets are of rather similar size, both firms are better off if they enter the industry sequentially. In those cases, the first entrant has incentive to reveal its planned channel strategies, and the follower has incentive to seek out and consider this information. © 2010 Wiley Periodicals, Inc. Naval Research Logistics, 2010     

Strategic outsourcing under technology spillovers

We study a supply chain in which an original equipment manufacturer (OEM) and a contract manufacturer (CM) compete in the finished goods market. The OEM can decide whether to outsource the intermediate good, a critical component for producing the finished good, from the CM or make in‐house production. Technology transition improves the CM's production efficiency, and it can take two different forms: a direct technology transfer from the OEM to the CM or technology spillovers through outsourcing from the OEM to the CM. We document the possibility of strategic outsourcing, that is, the CM supplies the intermediate good to the OEM when she is less efficient than the OEM's in‐house production. We find that technology spillovers can strengthen the incentive for strategic outsourcing. Furthermore, compared with direct technology transfers, outsourcing coupled with technology spillovers may generate more technology transition. Outsourcing is a particularly appropriate channel for implicit collusion when the OEM is not very efficient with the production of the intermediate good. Our results suggest that ex post competition on the finished goods can create room for ex ante collaboration and provide some implications on the OEM's outsourcing strategies when facing a competitive CM.© 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 501–514, 2014     

Markets for surplus components with a strategic supplier

We study markets for surplus components, which allow manufacturers with excess component inventory to sell to firms with a shortage. Recent developments in internet commerce have the potential to greatly increase the efficiency of such markets. We develop a one‐period model in which a monopolist supplier sells to a number of independent manufacturers who are uncertain about demand for final goods. After uncertainty is resolved, the manufacturers have the opportunity to trade. Because uncertainty is over demand functions, the model allows us to endogenize both the price of final goods and the price of components in wholesale and surplus markets. We derive conditions on demand uncertainty that determine whether a surplus market will increase or decrease supplier profits. Increased costs of transacting on the surplus market may benefit manufacturers, because of the impact of these costs on the supplier's pricing power. The surplus market can decrease overall efficiency of the supply chain, since the benefit of better allocation of components may be outweighed by an increased double‐marginalization effect. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005.     

The Effects of Terrorism on Turkish Financial Markets

Abstract

In this research, we analyzed how Turkish financial markets and foreign investors in the stock market reacted to the terror attacks in Turkey. Our analysis, which was performed using the terror index for the stock market and the foreign exchange market, revealed that returns, abnormal returns, and cumulative abnormal returns were not affected by the terror attacks; however, foreign investors in the stock market were affected. When the geographic regions of the terror attacks were analyzed, the findings showed that foreign investors were negatively affected mainly by the terror attacks that occurred in southeast Anatolia. Attack type and target type were important only for foreign investors. An evaluation of the interaction between the terror attacks and the markets with the involvement of the terrorist organizations indicated that only the foreign investors in the stock market were affected by Al-Qaeda and PKK-linked terror attacks. An evaluation of the effect of terror attacks in foreign countries on Turkish financial markets revealed no effect on the domestic stock market and foreign exchange markets. We also examined the volatility spillovers from the terror index to the stock market and found that terrorist attacks increased the volatility of the stock market.     

Optimal operating policies in a commodity trading market with the manufacturer's presence

With the help of the Internet and express delivery at relatively low costs, trading markets have become increasingly popular as a venue to sell excess inventory and a source to obtain products at lower prices. In this article, we study the operational decisions in the presence of a trading market in a periodic‐review, finite‐horizon setting. Prices in the trading market change periodically and are determined endogenously by the demand and supply in the market. We characterize the retailers'optimal ordering and trading policies when the original manufacturer and the trading market co‐exist and retailers face fees to participate in the trading market. Comparing with the case with no trading fees, we obtain insights into the impact of trading fees and the fee structure on the retailers and the manufacturer. Further, we find that by continually staying in the market, the manufacturer may use her pricing strategies to counter‐balance the negative impact of the trading market on her profit. Finally, we extend the model to the case when retailers dynamically update their demand distribution based on demand observations in previous periods. A numerical study provides additional insights into the impact of demand updating in a trading market with the manufacturer's competition. © 2009 Wiley Periodicals, Inc. Naval Research Logistics, 2010     

品牌联合:论西部高校品牌价值提升的途径及策略

该文以品牌联合为视角,分析了西部高校实施大学品牌战略过程中品牌联合的形式和影响因素,并提出了西部高校实施品牌联合的策略     

“Made in China”: an emerging brand in the global arms market

Possession of a brand is a sine qua non for economic success, not least because it connotes trust in delivering the value promised. Although Western arms exporters offer branded systems whose sales are influenced by price, there is a plethora of other economic variables, such as offset requirements and life-cycle support. Entrants to the international arms market will struggle without such arms “packages.” China’s entry, however, goes beyond the traditional economic paradigm. A four-stage historical model offers the backdrop for identifying the drivers that have forged its market entry into 55 countries worldwide. The strategy initially focused on sales of rudimentary military equipment for political purposes, but recently it has begun to commercialize exports, repositioning them from a low- to a high-tech sales trajectory. A Sino “brand” is thus emerging, reflecting both competitiveness and diplomatic considerations, especially non-interference in client state domestic affairs.     

Social benefits of government investment in enterprises

A critical issue for many governments is boosting the adoption rates of products or technologies that enhance consumer surplus or total social welfare. Governments may, for example, pay subsidies to producers or to consumers to stimulate the manufacture or consumption of specific products, for example, energy-efficient appliances or more effective drugs. This research proposes a strategic government investment policy, namely, share acquisition, and demonstrates its effectiveness in reaching societal objectives. We consider a Cournot quantities-choice market comprised of homogeneous firms where the government intervenes to buy shares, and turning private firms into state-owned enterprises. We recognize that purchasing a single private firm is the optimal policy for the government to reach its societal objectives. Additionally, taking into consideration financial constraints, we find that the optimal stake increases with the budget. Compared with the optimal output-based subsidy policy, when the budget is low, the optimal government investment policy induces a higher consumer surplus. In addition, in differentiated Cournot competition, under which firms compete in selling substitutable products, we find that when the budget is sufficient, the optimal stake purchased first decreases and then increases according to the substitutability level among products.     

Pricing and capacity allocation strategies: Implications for manufacturers with product sharing

Emerging sharing modes, like the consumer-to-consumer (C2C) sharing of Uber and the business-to-consumer (B2C) sharing of GoFun, have considerably affected the retailing markets of traditional manufacturers, who are motivated to consider product sharing when making pricing and capacity decisions, particularly electric car manufacturers with limited capacity. In this paper, we examine the equilibrium pricing for a capacity-constrained manufacturer under various sharing modes and further analyze the impact of capacity constraint on the manufacturer's sharing mode selection as well as equilibrium outcomes. We find that manufacturers with low-cost products prefer B2C sharing while those with high-cost products prefer C2C sharing except when the sharing price is moderate. However, limited capacity motivates manufacturers to enter into the B2C sharing under a relatively low sharing price, and raise the total usage level by sharing high-cost products. We also show that the equilibrium capacity allocated to the sharing market with low-cost products first increases and then decreases. Finally, we find that sharing low-cost products with a high limited capacity leads to a lower retail price under B2C sharing, which creates a win-win situation for both the manufacturer and consumers. However, sharing high-cost products with a low limited capacity creates a win-lose situation for them.     

The impact of animal welfare regulations on firms' product offerings: Humane or organic product?

Increased public concerns about animal welfare have spurred new regulations to improve animals' treatment and living conditions. We study how these regulations affect firms' product offerings, prices, and profits. We consider two competing animal agriculture supply chains, each consisting of a supplier and a buyer. New regulations require firms to choose between offering humane or organic products, which are differentiated by animals' living conditions. We find that consumers' growing awareness of animal welfare encourages firms to offer organic products, which require the highest standards for animals' living conditions. We also show that tightening humane product standards and loosening organic product standards encourage firms to offer organic products—but with distinct pricing implications. The former leads to higher retail prices whereas the latter may lower retail prices. Depending on costs and consumers' awareness of animal welfare, a humane product may be priced higher or lower than an organic product. Furthermore, we provide conditions under which a regulator should offer a unit-cost or an investment cost subsidy to improve social welfare. We show that subsidies can encourage firms to change from offering humane to organic products, or vice versa, to enhance total social welfare.     

Dynamic pricing in a dual‐market environment

This article is concerned with the determination of pricing strategies for a firm that in each period of a finite horizon receives replenishment quantities of a single product which it sells in two markets, for example, a long‐distance market and an on‐site market. The key difference between the two markets is that the long‐distance market provides for a one period delay in demand fulfillment. In contrast, on‐site orders must be filled immediately as the customer is at the physical on‐site location. We model the demands in consecutive periods as independent random variables and their distributions depend on the item's price in accordance with two general stochastic demand functions: additive or multiplicative. The firm uses a single pool of inventory to fulfill demands from both markets. We investigate properties of the structure of the dynamic pricing strategy that maximizes the total expected discounted profit over the finite time horizon, under fixed or controlled replenishment conditions. Further, we provide conditions under which one market may be the preferred outlet to sale over the other. © 2015 Wiley Periodicals, Inc. Naval Research Logistics 62: 531–549, 2015     

New product introduction against a predator: A bilevel mixed‐integer programming approach

We consider a scenario with two firms determining which products to develop and introduce to the market. In this problem, there exists a finite set of potential products and market segments. Each market segment has a preference list of products and will buy its most preferred product among those available. The firms play a Stackelberg game in which the leader firm first introduces a set of products, and the follower responds with its own set of products. The leader's goal is to maximize its profit subject to a product introduction budget, assuming that the follower will attempt to minimize the leader's profit using a budget of its own. We formulate this problem as a multistage integer program amenable to decomposition techniques. Using this formulation, we develop three variations of an exact mathematical programming method for solving the multistage problem, along with a family of heuristic procedures for estimating the follower solution. The efficacy of our approaches is demonstrated on randomly generated test instances. This article contributes to the operations research literature a multistage algorithm that directly addresses difficulties posed by degeneracy, and contributes to the product variety literature an exact optimization algorithm for a novel competitive product introduction problem. © 2009 Wiley Periodicals, Inc. Naval Research Logistics, 2009     

The future of the defence firm: the case of the UK aerospace industry

The focus of this paper is the future of the defence firm within the context of the UK aerospace industry and its supply chain. The analysis considers aerospace markets and the aerospace industry in the UK before assessing the future of the defence/aerospace firm as a case study. The paper concludes that its future in terms of the strategic and important aerospace industry is uncertain. The corporate governance of the defence firm will have to change to reflect the hollowing‐out of the firm as the industry experiences significantly less vertical integration. The emphasis of the future defence/aerospace firm will be on ‘buy’ and not necessarily ‘make’. There will also be fewer independent defence aerospace firms as horizontal integration will occur across air, land and sea platforms as well as civil and defence aerospace firms. Indeed, conglomerate integration may even occur with cost pressures and market forces ensuring that merger activity goes beyond defence and aerospace into wider manufacturing industries and, in some cases, service industries in global markets.     

A game theoretic approach to a two firm bidding problem

In this paper a model is developed for determining optimal strategies for two competing firms which are about to submit sealed tender bids on K contracts. A contract calls for the winning firm to supply a specific amount of a commodity at the bid price. By the same token, the production of that commodity involves various amounts of N different resources which each firm possesses in limited quantities. It is assumed that the same two firms bid on each contract and that each wants to determine a bidding strategy which will maximize its profits subject to the constraint that the firm must be able to produce the amount of products required to meet the contracts it wins. This bidding model is formulated as a sequence of bimatrix games coupled together by N resource constraints. Since the firms' strategy spaces are intertwined, the usual quadratic programming methods cannot be used to determine equilibrium strategies. In lieu of this a number of theorems are given which partially characterize such strategies. For the single resource problem techniques are developed for determining equilibrium strategies. In the multiple resource problem similar methods yield subequilibrium strategies or strategies that are equilibrium from at least one firm's point of view.     

A neural network measurement of relative military security ‐ the case of Greece and Cyprus

I demonstrate the existence of two sources of contestability in the military aerospace market, within producing and export countries, through the State’s triple role as unique buyer, regulator and seller. For the producing countries, I introduce the new concept, ‘sovereignty price’; that is, the profit a State agrees to grant to its defence firms to perpetuate their domestic activities. This subjective, evolutionary concept provides a dynamic character to the theory of contestable markets. Moreover, I show that contestability is more effective than antitrust policies and a solution of the cost disease. Empirical cases are shown to confirm the theoretical analysis.     

Flexible capacity strategy in an asymmetric oligopoly market with competition and demand uncertainty

This article studies flexible capacity strategy (FCS) under oligopoly competition with uncertain demand. Each firm utilizes either the FCS or inflexible capacity strategy (IFCS). Flexible firms can postpone their productions until observing the actual demand, whereas inflexible firms cannot. We formulate a new asymmetrical oligopoly model for the problem, and obtain capacity and production decisions of the firms at Nash equilibrium. It is interesting to verify that cross‐group competition determines the capacity allocation between the two groups of firms, while intergroup competition determines the market share within each group. Moreover, we show that the two strategies coexist among firms only when cost differentiation is medium. Counterintuitively, flexible firms benefit from increasing production cost when the inflexible competition intensity is sufficiently high. This is because of retreat of inflexible firms, flexibility effect, and the corresponding high price. We identify conditions under which FCS is superior than IFCS. We also demonstrate that flexible firms benefit from increasing demand uncertainty. However, when demand variance is not very large, flexible firms may be disadvantaged. We further investigate the effects of cross‐group and intergroup competition on individual performance of the firms. We show that as flexible competition intensity increases, inflexible firms are mainly affected by the cross‐group competition first and then by the intergroup competition, whereas flexible firms are mainly affected by the intergroup competition. Finally, we examine endogenous flexibility and identify its three drivers: cost parameters, cross‐group competition, and intergroup competition. © 2017 Wiley Periodicals, Inc. Naval Research Logistics 64: 117–138, 2017     

Economic and environmental impacts of vertical and horizontal competition and integration

We explore the economic and environmental impacts of market structures (competition or integration at vertical and horizontal levels). We consider a bilateral duopoly consisting of two manufacturers and two retailers in which each manufacturer offers a wholesale price contract to the respective retailer. The manufacturers decide on wholesale prices and abatement efforts concerning pollution emissions related to manufacturing processes, whereas the retailers compete in quantities in the consumer market. To understand the comprehensive effects of market structures on economic competitiveness and environmental sustainability, we examine a measure of eco‐friendly social welfare, which is the ratio of social welfare and environmental pollution. Interestingly, we find that the market structures that have been believed to be more efficient are less efficient from a broader perspective: (1) double marginalization can generate higher eco‐friendly social welfare, and (2) horizontal competition between firms can result in lower eco‐friendly social welfare. Although vertical integration and horizontal competition yield greater social welfare by facilitating more production activities, these market structures often fail to induce sufficient abatement efforts to balance the polluting effect of the large volume, resulting in more significant environmental degradation. We also show that, despite the pollution‐curbing effect, higher emission penalties can result in less eco‐friendly social welfare. They can even curtail the abatement efforts of firms under particular circumstances. When products become more substitutable, the eco‐friendly social welfare can decrease depending upon the market structure.     

Competing with channel partners: Supply chain conflict when retailers introduce store brands

Private‐label products are of increasing importance in many retail categories. While national‐brand products are designed by the manufacturer and sold by the retailer, the positioning of store‐brand products is under the complete control of the retailer. We consider a scenario where products differ on a performance quality dimension and we analyze how retailer–manufacturer interactions in product positioning are affected by the introduction of a private‐label product. Specifically, we consider a national‐brand manufacturer who determines the quality of its product as well the product's wholesale price charged to the retailer. Given the national‐brand quality and wholesale price, the retailer then decides the quality level of its store brand and sets the retail prices for both products. We find that a manufacturer can derive substantial benefits from considering a retailer's store‐brand introduction when determining the national brand's quality and wholesale price. If the retailer has a significant cost disadvantage in producing high‐quality products, the manufacturer does not need to adjust the quality of the national‐brand product, but he should offer a wholesale price discount to ensure its distribution through the retailer. If the retailer is competitive in providing products of high‐quality, the manufacturer should reduce this wholesale price discount and increase the national‐brand quality to mitigate competition. Interestingly, we find the retailer has incentive to announce a store‐brand introduction to induce the manufacturer's consideration of these plans in determining the national‐brand product quality and wholesale price. © 2010 Wiley Periodicals, Inc. Naval Research Logistics, 2010     

Country Survey XIII: Japan's security posture and defense industry prospects

Defense budgets in Japan have been complicated compromises from numerous inputs ‐ including threat perceptions, domestic industrial/technological base development, support for the bilateral security treaty with the United States and internal bureaucratic politics ‐ but with the fall of the former Soviet Union, the clearest justification for higher spending disappeared. Double‐digit defense spending increases that were common in the 1980s have been replaced by annual increases lower than present inflation rates, resulting in negative real growth in the country's defense budget. Domestic economic problems and consistent government pressures for smaller budgets have further slowed annual growth in total spending and have contributed to lower procurement budgets. As a result, the domestic Japanese defense industry is facing far more constrained conditions from the growth years of a decade before.

Government policymakers are examining Japan's regional security environment as well as its alliance with the United States to determine the appropriate course for the country to take in the coming years. The formal security treaty with the United States is likely to remain a major element of government positions, but other aspects of the country's overall security posture are open to debate. Perceptions of a reduced threat environment are fueling additional pressures for defense budget cuts.

The domestic defense industry seeks means to assure its survival in domestic defense markets in this constrained environment. Expansion into overseas markets to offset declining domestic markets is an option that currently is constrained by policy restrictions on arms exports. Industry is advocating re‐examination of those policies and unlike earlier years, government appears willing to respond positively but cautiously to this lobbying.     

Dynamic inventory control with limited capital and short‐term financing

For most firms, especially the small‐ and medium‐sized ones, the operational decisions are affected by their internal capital and ability to obtain external capital. However, the majority of the literature on dynamic inventory control ignores the firm's financial status and financing issues. An important question that arises is: what are the optimal inventory and financing policies for firms with limited internal capital and limited access to external capital? In this article, we study a dynamic inventory control problem where a capital‐constrained firm periodically purchases a product from a supplier and sells it to a market with random demands. In each period, the firm can use its own capital and/or borrow a short‐term loan to purchase the product, with the interest rate being nondecreasing in the loan size. The objective is to maximize the firm's expected terminal wealth at the end of the planning horizon. We show that the optimal inventory policy in each period is an equity‐level‐dependent base‐stock policy, where the equity level is the sum of the firm's capital level and the value of its on‐hand inventory evaluated at the purchasing cost; and the structure of the optimal policy can be characterized by four intervals of the equity level. Our results shed light on the dynamic inventory control for firms with limited capital and short‐term financing capabilities.Copyright © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 184–201, 2014