Using the Pack‐and‐a‐Half Rule to Eliminate Backroom Inventories in Retail Operations

In the retail industry, backroom inventories are typically associated with higher labor costs and greater operational complexity. Thus, retailers look for ways to eliminate backroom inventories. A heuristic used for this purpose is the pack‐and‐a‐half rule which suggests that the shelf space allocated for a product should be at least 50% larger than the case pack quantity in which the product is delivered. Despite its popularity among retailers, the pack‐and‐a‐half rule has been ignored in the academic literature. We introduce the pack‐and‐a‐half rule, assess its impact on a retailer's profits, identify cost, demand, and product characteristics driving this impact, and propose a modification. Based on an analysis of data obtained from a retailer on 1,986 SKUs in 20 categories, we find that the pack‐and‐a‐half rule decreases a retailer's profits, on average, by 10% when applied uniformly across all SKUs. Further, this decrease is significantly affected by product depth, product width, demand elasticity, case pack quantity, and inventory carrying cost. Finally, we develop a set of modifications based on these variables where the pack‐and‐a‐half rule is applied selectively and in a stepwise fashion. These modifications limit the decrease in a retailer's profits to a range between 6% and 7%.     

Trade and Tradability: Exports, Imports, and Factor Markets in the Salter-Swan Model

We extend the Salter-Swan model to include both factor markets and semi-traded goods. In our model, changes in relative factor prices depend on changes in world commodity prices, factor endowments, and the trade balance. In contrast, only changes in world commodity prices can affect factor prices in the neoclassical trade model. The inclusion of semi-traded goods weakens the magnification effect in both the Stolper-Samuelson and Rybczynski theorems. When imports and domestic goods are poor substitutes, a characteristic of some commodities in developing countries, the sign of the Stolper-Samuelson theorem is reversed.     

Using Industry-Sponsored Game Nights to Educate About Risk and Insurance

As educators in the field of risk management and insurance, we see know- ledge of risk management and insurance as a core business function. However, some colleagues and students see insurance as cold-call sales or companies with a lot of money that continue to raise their prices. So we have to find ways to make our public aware of the usefulness of risk management and insurance in the business world and in private life and of the opportunities that having such knowledge presents to all business majors and business people. One method that is beginning to show dramatic improvements in at least our students' perceptions of the field and the major involves industry-sponsored game nights. While not an academic endeavor nor strictly risk management education, we believe the idea provides a useful tool for opening students' eyes to the need for knowledge of risk management and insurance and of the opportunities that are available in the insurance industry and its related fields. This article discusses the history of such an event at Appalachian State Univer- sity, the current status of the North Carolina Surplus Lines Association (NCSLA) event, and the benefits of the event.     

Should the Pre‐Notification of Mergers Be Compulsory in Australia?

Australia is unusual among the world's antitrust jurisdictions in not making the pre‐notification of mergers compulsory. However, if the parties are concerned that the Australian Competition and Consumer Commission (ACCC) is likely to object to the merger, there are strong incentives for them to notify the ACCC as the regulator has developed a strong reputation for imposing heavy costs on parties that fail to notify such mergers. The result is a system of quasi‐compulsory notification that creates the strongest incentives for parties to notify the ACCC of those proposals to which it is most likely to object. This study analyses data extracted from the ACCC's merger database and the empirical results are consistent with this characterisation. Mergers reported voluntarily by the parties are found to experience longer delays to completion, and are more likely to be challenged by the ACCC, when compared with a sample of all other mergers assessed by the regulator. The results suggest that non‐compulsory notification allows the parties themselves to pre‐sort the proposed merger vis‐à‐vis its interest to the ACCC.     

The Prophecy of Place: A Labor Market Study of Young Women and Education

This study demonstrates that place—defined in this article as labor market area (LMA)— provides a useful context for examining how youth manage gendered situations. Places vary by conditions in which gender is more, less or differently salient, and a particular mix of factors accommodates different individual outcomes. This study utilizes multi–level modeling to examine influence of LMA characteristics on over–time educational measures for young women (Center for Human Resource Research 1994). Hierarchical models determine place–level effects on both average outcomes (within and between LMAs) and attainment processes. A major finding of this study is that aggregate place effects channel personal decisions and outcomes of young women. Young women's educational aspirations are dependent on gender– specific variables such as the number of women in college or the number of young women married in a local area. Attainment depends on the percentage of women in higher education and a local labor market's average age at first marriage. Further, what are assumed to be positive environmental effects (e.g., manufacturing dominance) are based on structural advantages for men and actually depress outcomes for women. Notably, the influence of place is independent of strong individual–level determinants, including social class.     

LESSONS FROM A MIDDLE MARKET LBO: THE CASE OF O.M. SCOTT

In 1986 The O.M. Scott & Sons Company, the largest producer of lawn care products in the U.S., was sold by the ITT Corporation in a divisional leveraged buyout. The company was founded in Marysville, Ohio in 1870 by Orlando McLean Scott to sell farm crop seed. In 1900, the company began to sell weedfree lawn seed through the mail. In the 1920s, the company introduced the first home lawn fertilizer, the first lawn spreader, and the first patented bluegrass seed. Today, Scott is the acknowledged leader in the “do-it-yourself” lawn care market, with sales of over $300 million and over 1500 employees. Scott remained closely held until 1971, when it was purchased by ITT. The company then became a part of the consumer products division of the huge conglomerate, and operated as a wholly-owned subsidiary for 14 years. In 1984, prompted by a decline in financial performance and rumors of takeover and liquidation, ITT began a series of divestitures. Over the next two years, total divestitures exceeded $2 billion and, after years of substandard performance, ITT's stock price significantly outperformed the market. On November 26, 1986, in the midst of this divestiture activity, ITT announced that the managers of Scott, along with Clayton & Dubilier (C & D), a private firm specializing in leveraged buyouts, had agreed to purchase the stock of Scott and another ITT subsidiary, the W. Atlee Burpee Company. The deal closed on December 30. Clayton & Dubilier raised roughly $211 million to finance the purchase of the two companies. Of that $211 million, almost $191 milion, or 91% of the total, was debt: bank loans, subordinated notes, and subordinated debentures. The $20 million of new equity was distributed as follows: roughly 62% of the shares were held by a C & D partnership, 21% by Scott's new subordinated debtholders, and 17.5% by Scott management and employees. After this radical change in financial structure and concentration of equity ownership, Scott's operating performance improved dramatically. Between the end of December 1986 and the end of September 1988, sales were up 25% and earnings before interest and taxes (EBIT) increased by 56%. As shown in Table 1, this increase in operating earnings was not achieved by cutting back on marketing and distribution or R & D. In fact, spending on marketing and distribution increased by 21% and R & D spending went up by 7%. Capital spending also increased by 23%.     

Monopoly Rents and Price Fixing in Betting Markets

Betting markets provide an ideal environment in which to examinemonopoly power due to the availability of detailed information on product pricing. In this paper we argue that the pricing strategies of companies in the U.K. betting industry are likely to be an important source of monopoly rents, particularly in the market for forecast bets. Pricing in these markets are shown to be explicitly coordinated. Further, price information is asymmetrically biased in favor of producers. We find evidence, based on U.K. data, that pricing of CSF bets is characterized by a significantly higher markup than pricing of single bets. Although this differential can in part be explained by the preferences of bettors, it is reasonable to attribute a significant part of the differential as being due to monopoly power.