Distribution Channel Decentralization and Strategic Durability Choice

In a simple two‐period setting we examine a decentralized distribution (marketing) channel consisting of an up‐stream durable‐goods manufacturer and down‐stream retailer. The manufacturer sets the wholesale price and the product’s durability while the retailer selects an output level. We show that in this setting, the profit‐maximizing manufacturer unambiguously selects a higher durability than the socially efficient (cost‐minimizing) level in both uncommitted sales and rental markets. We show this ‘reversed planned obsolescence’ result is due to the strategic benefit of durability in this double‐marginalization (double monopoly mark‐up) setting. This is in stark contrast to the usual integrated channel result where the profit‐maximizing manufacturer will select an efficient level of durability in rental markets and an inefficiently low durability in uncommitted sales markets (due to the selling firm’s commitment problem with potential buyers). Intuitively, with a decentralized distribution channel, the manufacturer faces potential commitment problems with both current buyers and its down‐stream retailer. We show, only in cases where both sources of commitment issues are removed (i.e. the manufacturer can credibly commit to both potential buyers and its retailer), will the profit‐maximizing durability choice be socially efficient.     

Implications of parent brand inertia for multiproduct pricing

This paper explores and quantifies the importance of parent brand state dependence to forward looking pricing outcomes in the area of umbrella branding and multi-product firms. We show through numerical simulations that loyalty (inertia) to the parent brand can decrease prices and reduce profits, as well as mitigate or even reverse the benefits of joint profit maximization relative to sub-brand profit maximization. These effects are mediated by brand asymmetries and the relative magnitude of sub-brand state dependence effects. Empirically, we focus on the Yogurt category, where we consider parent brands with several sub-brands. Using household level scanner data, we estimate the parameters that characterize consumer demand while flexibly accounting for consumer heterogeneity. We also estimate unobserved product costs based on a forward looking price setting game. Through counterfactual analysis, we study the overall effect of parent brand state dependence on prices and profits, as well as the empirical impact of joint profit maximization and changes in firms’ beliefs regarding consumer inertia. Our findings have implications for markets where demand is likely characterized by parent brand dynamics.     

Durable Goods and Switching Costs

A simple two–period switching cost model is developed and analyzed assuming durable output. The analysis indicates that many of the conventional managerial implications of the switching cost literature need not hold if products are durable. In particular, the model indicates that managers of durable goods firms that lease or rent output may wish to decrease their customer base (provide service to only a subset of the experienced customers) in future periods, in contrast to the non–durable goods case where the number of customers served is the same. Moreover, the model shows that the optimal behavior of sellers of durable products depends critically upon their commitment ability with buyers, and outlines the conditions under which a manager selling output may rationally expand their customer base (i.e. sell to new customers in a future period).     

OBSERVABLE MANAGERIAL INCENTIVES AND SPATIAL COMPETITION

In this paper we investigate the relationship between product market competition and managerial incentives within a circular city model with observable agency contracts. With respect to the case of unobservability studied by Raith (2003 ), we find that optimal managerial contracts provide lower incentives, and that equilibrium expected prices and profits are higher. Changes in competition fundamentals have ambiguous effects, but observable contracts alleviate their impact on incentives. Finally, observability involves three major implications: managerial incentives are higher under price regulation than under competition; prices may increase with the number of firms; consumer welfare may diminish when competition increases.     

The impact of managerial ability on crisis-period corporate investment

In this study, we document a strong positive relation between pre-crisis managerial ability and corporate investment during the crisis period, which remains robust in the presence of a large array of control variables capturing corporate governance attributes, executive compensation incentives and CEO characteristics. This relationship was prevalent only among firms with CEOs that had general managerial skills, rather than firm-specific skills. Our results also show that the positive relationship between managerial ability and corporate investment was supported by the capacity of such firms to secure greater financing and be less vulnerable to financial constraints during the crisis. Finally, we find that, on average, the stock market evaluates crisis-period investments positively, yet this effect is evident solely among firms characterized by high pre-crisis managerial ability. Overall, the results are consistent with the view that high managerial ability helps to mitigate underinvestment problems during a crisis which in turn increases firm value.     

Self-Sabotage and Durable-Goods Monopoly

We analyze a simple two-period linear demand durable-goods monopoly model with “self-sabotage.” The firm has the ability to sabotage its own production by increasing its future (period two) manufacturing costs. We find that an uncommitted monopoly seller has an incentive to engage in such self-sabotage, while a committed seller or renter has no such incentive. Unlike the previous papers on self-sabotage, we show this occurs even though the firm faces no rivals in the output market. In our durable-goods setting, the incentive for self-sabotage arises from the seller’s commitment problem with period-one buyers (the so-called Coase conjecture). Interestingly, we also find that this sort of self-sabotage can not only be profit enhancing for the uncommitted firm, but may also increase social welfare (in contrast to the earlier models on self-sabotage.)     

Managing Channel Profits: The Role of Managerial Incentives

The existing literature has examined how manufacturers can enhance profits by employing specific channel structures and channel coordination mechanisms. In this paper, we examine the implications of strategically designed managerial incentives for channel performance in a duopoly. We first analyze how equilibrium outcomes (especially manufacturer profits) are altered when the manufacturers provide their channel managers with strategically designed incentives. Following that, we examine how optimal channel structure decisions are altered when manufacturers provide their managers with strategic incentives, i.e., we examine how strategic incentives moderate optimal channel structure decisions. In contrast with the existing literature, we find that an asymmetric channel structure with one manufacturer employing a profit-maximizing retailer and the other integrated manufacturer providing strategic incentives for the channel manager in charge of pricing, is an equilibrium outcome under certain conditions. We then compare how the implications of strategic incentives differ from those of channel structure decisions and channel coordination initiatives, and discuss when and why strategic incentives yield superior outcomes from the manufacturer’s perspective. Our results shed light on the sparsely researched role of managerial incentives in the channel context.     

Multichannel shopping: The effect of decision making style on shopper journey configuration and satisfaction

Prior research demonstrates links between the maximizing tendency in decision making and online shopping behaviour, with maximizers spending considerable time on their online shopping yet being somewhat dissatisfied with their shopping decisions. Our research extends prior knowledge to the multichannel shopping context. Multichannel shopper journeys are an important form of shopping, whereby the activities comprising a shopping event occur in more than one channel. Our quantitative study examines relationships between two dimensions of maximizing, maximization as a strategy and maximization as a goal, multichannel shopper journey configuration and subsequent affect. Maximization as a strategy directly and positively relates to the numbers of channel switches and of pauses in a shopper journey and to the use of product and retailer reviews. It is indirectly associated with increased counterfactual thinking and regret, and with decreased satisfaction. Maximization as a goal has no effect on multichannel shopper journey configuration or on affect. Our findings have managerial relevance for multichannel retailers. We demonstrate that product and retailer reviews are of particular importance to those employing maximization as a shopping strategy, as they mitigate against their increased tendency to engage in counterfactual thinking. As counterfactual thinking leads maximizers to increased regret and decreased satisfaction, multichannel retailers can improve shopper satisfaction by actively directing their customers to reviews. Shoppers using maximization as a strategy could be helped to configure their shopper journeys with fewer channel switches and fewer pauses, as these provide maximizers with opportunities to doubt their decisions.     

Emic and etic interpretations of engagement with a consumer-to-consumer online auction site

This paper provides emic and etic interpretations of engagement with a consumer-to-consumer (C2C) online auction site, based on in-depth interviews with buyers. The study exposes three misconceptions about online C2C auctions; that the interaction between parties occurs exclusively online, that the relation between buyers and sellers is purely transactional in nature, and that the interaction between buyers and sellers does not lead to ongoing business relationships. The paper reveals the utilitarian, hedonic and social benefits that are the bases of engagement with the auction site. Social benefits materialize for auction buyers during offline exchanges. The paper also reveals marketer incentives and structural disincentives for consumers' ongoing use of the auction site.     

Efficient barriers to trade: A sequential trade model with heterogeneous agents

This paper studies the choice of tariffs and other type of consumption taxes and subsidies in a flexible price version of the Prescott [Prescott, Edward C., 1975. Efficiency of the Natural Rate. Journal of Political Economy 83, 1229-1236.] hotels model. It is shown that a country with unstable demand may benefit from a tariff on imports. More surprisingly, the exporting country may also benefit from the tariff. In general, I consider the problem of a world planner who chooses country specific consumption taxes and subsidies. I show that buyers in countries that tend to consume relatively more in the high demand state should be taxed and buyers in countries that tend to consume relatively more in the low demand state should be subsidized.     

A GLOBAL SUPPLY CHAIN PROFIT MAXIMIZATION AND TRANSFER PRICING MODEL

In environments where tax rates in local regions do not represent major decision factors, a cost minimization methodology, which represents the most common optimization modeling approach for integrated manufacturing and distribution planning, can help formulate an effective integrated plan. However, when planning flexibility or alternatives exist because of differing local country tax rates and types and intra‐company transfer pricing options, cost minimization methodologies may inaccurately identify profit‐maximizing global production and distribution plans. Instead, a profit maximization model that explicitly evaluates decisions such as where to incur tax liabilities and how to set intra‐company prices may be required to develop an integrated global manufacturing and distribution plan. In this paper, we discuss and formulate a model that yields profit maximizing global production and distribution plans. We discuss the managerial implications of our results, and the potential applications and benefits of the model.     

Crowdfunding: Tapping the right crowd

With crowdfunding, an entrepreneur raises external financing from a large audience (the “crowd”), in which each individual provides a very small amount, instead of soliciting a small group of sophisticated investors. This article compares two forms of crowdfunding: entrepreneurs solicit individuals either to pre-order the product or to advance a fixed amount of money in exchange for a share of future profits (or equity). In either case, we assume that “crowdfunders” enjoy “community benefits” that increase their utility. Using a unified model, we show that the entrepreneur prefers pre-ordering if the initial capital requirement is relatively small compared with market size and prefers profit sharing otherwise. Our conclusions have implications for managerial decisions in the early development stage of firms, when the entrepreneur needs to build a community of individuals with whom he or she must interact. We also offer extensions on the impact of quality uncertainty and information asymmetry.     

Examining strategic and economic development implications of globalising through franchising

This paper addresses the strategic and policy implications of franchise system expansion overseas. The study is based on survey data of 76 Mexican buyers of US franchise systems and information provided by seven directors of national franchise associations from both industrialised and developing countries. Globalisation, economic liberalisation and advances in communications provide strong incentives for franchising firms to seek access to foreign markets. This work delineates the conditions that favour, and that work against, international expansion of franchise networks from the perspective of franchisors, local franchise buyers and policy makers. The study questions the commonly held notion that franchising is consistent with successful firm strategies and the economic development goals of governments.     

How Economic Incentives May Destroy Social,Ecological and Existential Values: The Case of Executive Compensation

Executive compensation has long been a prominent topic in the management literature. A main question that is also given substantial attention in the business ethics literature—even more so in the wake of the recent financial crisis—is whether increasing levels of executive compensation can be justified from an ethical point of view. Also, the relationship of executive compensation to instances of unethical behavior or outcomes has received considerable attention. The purpose of this paper is to explore the social, ecological, and existential costs of economic incentives, by discussing how relying on increasing levels of executive compensation may have an adverse effect on managerial performance in a broad sense. Specifically, we argue that one-dimensional economic incentives may destroy existential, social, and systemic values that influence the manager’s commitment to ensure responsible business conduct, and have negative spillover effects that may reduce the manager’s performance. There are well-documented findings that demonstrate that reliance on sources of extrinsic motivation (such as economic incentives) may displace intrinsic motivation. Our perspective is a holistic one, in the sense that we will explore the influence of sources of extrinsic motivation on the manager’s intrinsic commitment to different types of values. We will in particular investigate how it may influence the manager’s ethical reflection and behavior or lack thereof.     

附加值最大化的经济效应分析

文章对附加值最大化问题建立了数学模型,对附加值最大化的经济效应分国内贸易和国际贸易两方面进行了利润最大化对比.附加值最大化具有产业结构提升效应,并且在国内贸易中可以和利润最大化相容,而在国际贸易中不一定相容;并对利润最大化在国际贸易中的效率损失和政策导向提出简单建议.     

Protocols for automated negotiations with buyer anonymity and seller reputations

In many Internet commerce applications buyers can easily achieve anonymity, limiting what a seller can learn about any buyer individually. However, because sellers need to keep a fixed web address, buyers can probe them repeatedly or pool their information about sellers with the information obtained by other buyers; hence, sellers' strategies become public knowledge. Under assumptions of buyer anonymity, publicly‐known seller strategies, and no negotiation transaction costs for buyers, we find that take‐it‐or‐leave‐it offers will yield at least as much seller profit as any attempt at price discrimination could yield. As we relax those assumptions, however, we find that sellers, and in some cases buyers as well, may benefit from a more general bargaining protocol. This revised version was published online in June 2006 with corrections to the Cover Date.     

Separate or Integrate? Assessing the Impact of Separation Between Product and Service Business on Service Performance in Product Manufacturing Firms

Purpose: Investigating how the separation of the product and service business mediates the effect of management's commitment to the service strategy on service performance in product manufacturing firms.

Methodology: The authors surveyed 216 European manufacturers in the high-value durable equipment industry moving into the service business. After assessing adequacy of measurement scales, the authors tested statistically for mediation. Their results hold when replicating the study using a structural equation modeling approach and while testing for common method biases.

Findings: The authors find evidence that the creation of a separate service organization, organized as a profit center, has a significant positive mediating effect between managerial commitment and the services' financial performance. Although separation also has a positive mediating effect between commitment and non-financial performance, organizing services as a profit center had a negative effect on the service's non-financial indicators.

Research Limitations: Research limitations include (a) a sample limited to German-speaking firms in the high-value durable equipment industry, (b) measurements based on self-reported managerial perceptions of service performance, and (c) conceptualization of service as a single strategic response.

Practical Implications: Although the complementarity between products and services is high in the market, the authors' research suggests few synergies to leverage their integration inside the organization. Accordingly, management should, at least in transition efforts similar to the ones included in this sample, look into creating a separate and distinct service organization.

Value/Contribution: This research was driven by practical concern on how to organize service operations in a manufacturing firm. Initial framing of the research through the creation of the construct of separation of product and service business was used.     

Managing the Quality of Marketing Data: Cost/benefit Tradeoffs and Optimal Configuration

A large majority of work in database marketing deals with what to do with data when it is available. This paper focuses on an aspect of data that has not been visited frequently in the database/interactive marketing literature—managing the quality of data resources from a profit point of view. While costly to achieve and sustain, high data quality is essential for effective database marketing. The notion that “more is better” very often prevails in data quality management decisions, essentially with very little consideration, if any, of cost. This paper suggests that data quality management decisions should be driven by considerations of cost–benefit tradeoffs and profit maximization. It specifically addresses data quality decisions which are highly relevant in the database marketing area: the subset of data records managed, reflecting time-span coverage, and the targeted quality levels in this subset. Decisions of these types are routinely made based on satisfying technical and functional requirements. In this study, we propose a model that quantifies the benefits and the costs associated with these decisions, and permits optimizing them from a profit maximization standpoint. The paper describes the model development, discusses its implications for data quality management decisions, and highlights its potential contributions with illustrative examples.     

Integrating Ethical Issues with Managerial Decision Making in the Classroom: Product Support Program Decisions

Literature on the teaching of ethics points to the need for realistic business problems in which students deal with ethical dilemmas. This paper presents the results of an experiment in which students take on the role of a Brand Manager who must decide on the level of support to allocate to four distinct business problems. The problems were presented as business problems including realistic profit and cost considerations, rather than being posed as "ethics cases". Students were able to select from a range of product support levels for each problem. The experiment isolated the factor effects which included level of realism, degree of competition, company situation in terms of fault and profit level, and problem type relative to damage and visibility. Company fault was the most important factor in determining the level of product support allocations. Allocations generally increased when there was an increase in profit level from low to medium. However, there was no additional increase in allocations above the medium profit level. The paper concludes with suggestions on how the results can be used as a springboard for discussion of the integration of ethical considerations in managerial decision making.