Supply Chain Networks and Electronic Commerce: A Theoretical Perspective

In this paper, we develop a framework for the formulation, analysis, and computation of solutions to supply chain network problems in the presence of electronic commerce. Specifically, we consider manufacturers who are involved in the production of a homogeneous product and can now sell and have delivered the product not only to retailers but also directly to consumers. In addition, the manufacturers can transact with the retailers electronically. We assume that both the manufacturers and the retailers seek to maximize their profits, whereas the consumers take both the prices charged by the retailers and the manufacturers, along with the associated transaction costs, in making their consumption decisions. We identify the network structure of the problem, derive the equilibrium conditions, and establish the finite-dimensional variational inequality formulation. We then utilize variational inequality theory to obtain qualitative properties of the equilibrium pattern. In addition, we propose a continuous time adjustment process for the study of the disequilibrium dynamics and establish that the set of stationary points of the resulting projected dynamical system coincides with the set of solutions of the variational inequality problem. Finally, we apply an algorithm for the determination of equilibrium prices and product shipments in several supply chain examples. This paper synthesizes Business-to-Consumer (B2C) and Business-to-Business (B2B) decision-making in a supply chain context within the same framework.     

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.     

Marketplace,reseller, or web-store channel: The impact of return policy and cross-channel spillover from marketplace to web-store

With the advent of e-commerce, new platform sales have been created in the online retailing industry, and choosing the best platform has become a challenge for manufacturers. For instance, marketplace and web-store are two e-channels for selling goods directly to end customers. In the marketplace, manufacturers sell their products directly to online customers through e-tailers' platforms and share revenue with e-tailers. In the web-store channel, manufacturers sell their products directly to end customers through their platforms and do not need to e-tailers' platforms. However, some manufacturers and e-tailers continue with reseller channel yet. Reseller channel is another conventional channel in which manufacturers distribute their products to e-tailers, then e-tailers choose retail prices and sell them to consumers. Therefore, with these three different channels, the key question is when and under what conditions manufacturers can choose marketplace or reseller channel in addition to their web-store channels to grow their market share. In this paper, we analyze these three different e-channels and the conditions that manufacturers adopt the marketplace or reseller channel. For this purpose, we consider a model with two manufacturers and one e-tailer in which the manufacturers have their web-store channels, and they are willing to adopt another channelـ reseller or marketplace. The manufacturers offer a return policy in their web-store channels as a competitive strategy for attracting more customers. We find that offering return policy in web-store channels has no effect on the choice between the marketplace and reseller channel, but it has an impact on the amount of manufacturers' profits in each channel. Also, we demonstrate that regardless of offering return policy, as the coefficient of cross-channel effect increases, the manufacturers' profits, whether they choose reseller channel or marketplace channel, increase. But, as the coefficient of cross-channel effect increases, the e-tailer's profit increases when both manufacturers choose reseller channel, otherwise decreases. If manufacturers offer a return policy, the e-tailer's profit is highest when both manufacturers choose reseller channel, and if they do not offer a return policy, the e-tailer's profit is highest when both manufacturers choose marketplace channel.     

Why offer lower prices to past customers? Inducing favorable social price comparisons to enhance customer retention

Price discrimination policies vary widely across companies. Some firms offer new customers the lowest price; others give preferential prices to their past customers. We contribute to the literature on price discrimination in behavior-based pricing by exploring how customers’ social price comparisons, i.e., comparing one’s price to that received by similar peers, impact the optimal structure of price discrimination. Social price comparisons have a negative (positive) impact on customers’ transaction utility if the price charged to past customers is higher (lower) than a new customer’s price. Using an analytical model with vertically differentiated firms, we show that a firm with relatively large market share will reward its past customers with relatively low prices when social price comparisons have a sufficiently large impact on utility. Furthermore, we find that social price comparisons lead to a relaxation of the price competition for new customers. Thus, both firms can earn higher profits when such comparisons are made than when they are absent. We also examine how other factors, such as horizontal competition and strategic customers, interact with social price comparison concerns to impact pricing strategies. Finally, we show how pricing behavior differs when price comparisons are based on historic reference prices rather than on peers’ prices.     

Empirical investigation of channel reactions to brand introductions

We investigate how incumbent manufacturers and retailers alter their pricing behavior in response to new product introduction. In performing our analysis, we need to be cognizant of the fact that the observed price changes can be due to entry-induced changes in a) demand conditions or b) costs or, on the other hand, to the competitive behavior of c) manufacturers and/or d) the retailer. In order to separate these four changes, we posit that manufacturer and retailer pricing is an outcome of maximizing a combination of shares and profits. This enhanced objective function allows us to measure competitive conduct benchmarked as less or more competitive than under the Bertrand-Nash framework. Our empirical analysis is based on the toothpaste category for the time period January 1993–February 1995. During this period, there were three brand introductions in two rounds of entry. Using the estimates from the demand and the supply model, we compute the changes in the retail and wholesale prices that are attributable to changes in demand conditions, manufacturer and retailer competitive conduct, and cost changes. These results support our conjecture that inferring the change in conduct solely based on a change in observed prices is likely to be erroneous. For the first new brand entry, we find that the brand introduction did not significantly increase competition between manufacturers. As a result, the balance of channel power between the manufacturers and the retailers remained unaltered. Both retailer and manufacturer profit margins increased after the first entry. However, subsequent to the second entry, retailer share of channel profits increased at the expense of the manufacturers; manufacturers even saw a decline in their absolute profit margins. We believe that this research will provide insight for manufacturers and retailers regarding how the various channel participants are likely to react to new product introduction. Furthermore, policymakers interested in understanding competitive reactions to new product introduction should find this research useful.     

浅谈网络环境下服装零售新模式及策略

作为代表未来贸易方式发展方向的一种新型商业模式,电子商务是在计算机技术、网络技术以及以数据库的基础上发展起来的。传统零售商开展电子商务面对的最重要问题往往是如何将线下的资产与电子商务进行整合,本文就传统服装零售业发展电子商务的新策略进行了探讨,分别对产品、价格、渠道及促销新策略进行分析总结。     

Regain control of your international prices

Companies that strive too long for internationally differentiated pricing run the risk that prices erode. Price harmonization therefore has to be given top priority. By professionally performing the three steps described below, companies can systematically align their prices according to their customers’ purchasing behavior and thus regain control of the international pricing system.     

On the economics of Internet peering

We discuss economic rationales behind peering decisions in the Internet. In the first part of the paper we analyze the decision about a bilateral peering agreement between two commercial Internet service providers (ISPs) who are in Cournot competition. In the second part we discuss multilateral peering between commercial ISPs and an academic research network (ARN). The latter is organized as a club of academic institutions who share the cost of their network. It is discussed whether peering threatens the existence of the ARN and under what circumstances a commercial ISP would want to use strategic pricing to win all ARN‐members as customers. This revised version was published online in June 2006 with corrections to the Cover Date.     

Would You Like to be a Prosumer? Information Revelation,Personalization and Price Discrimination in Electronic Markets

Electronic commerce and flexible manufacturing allow personalization of initially standardized products at low cost. Will customers provide the information necessary for personalization? Assuming that a consumer can control the amount of information revealed, we analyze how her decision interacts with the pricing strategy of a monopolist who may abuse the information to obtain a larger share of total surplus. We consider two scenarios, one where consumers have different tastes but identical willingness to pay and another with high and low valuation customers. In both cases full revelation may only result if the monopolist can commit to a maximum price before consumers decide about disclosure.     

The promise and peril of dynamic targeted pricing

Dynamic pricing is widely adopted in many industries, such as travel and insurance. These industries are also gaining extensive capabilities in identifying and segmenting customers, partly fueled by the increasing availability of data. It is natural to ask whether firms should take advantage of such developments by charging different prices to different customer segments. If so, under what conditions? We seek answers to these highly managerially relevant questions.We consider a market with two customer segments served by a monopolist. The monopolist can choose among a set of pricing strategies to exploit consumers’ inter-temporal preferences and/or inter-segment variations. At one end of the spectrum, the firm can charge a constant price to all customers, which is called static pricing. At the other end of the spectrum, the firm can charge different prices to different customer segments and vary these prices over time, which is referred to as dynamic targeted pricing. We systematically compare these alternative pricing strategies. We show that dynamic pricing without targeting can be more effective than static targeted pricing when customers are not very forward looking, which corroborates the findings in the empirical literature. Interestingly, we find that the monopolist can be worse off when she adopts targeting in addition to dynamic pricing. We conduct laboratory experiments to test several key model predictions. The studies show that individuals behave in a manner consistent with the predictions of our model.     

Currency Prices, the Nominal Exchange Rate, and Security Prices in a Two‐Country Dynamic Monetary Equilibrium

This paper examines a continuous‐time two‐country dynamic monetary equilibrium in which countries with possibly heterogeneous tastes and endowments hold their own money for the purpose of transaction services formulated via money in the utility function. Given a price system, no‐arbitrage pricing results are provided for the price of each money and the nominal exchange rate. Characterizations are provided for equilibrium prices for general time‐additive preferences and non‐Markovian exogenous processes. Under a Markovian structure of model primitives, the currency prices are shown to solve a bivariate system of partial differential equations. Assuming that each country is endowed with heterogeneous separable power utility and the exogenous quantities all follow geometric Brownian motions, an equilibrium is shown to exist and additional characterization is provided. A further example of nonseparable Cobb–Douglas preferences is investigated. The additional features over the customary environment of homogeneous logarithmic preferences are emphasized.     

Value‐driven Internet shopping: The mental accounting theory perspective

When faced with competition and the ease with which customers can compare prices across sellers, Internet vendors often lower prices in a bid to increase sales. However, recent research reports that even price‐sensitive customers do not always purchase from Internet vendors offering the lowest prices. In contrast, value has been considered a key motivator of customer decision making in economics and marketing. However, little is known about the role and effect of value in Internet shopping. This study examines online customer purchase decision making from the value perspective based on mental accounting theory. This study also identifies monetary (perceived price) and non‐monetary (perceived risk, convenience, and pleasure) determinants of value. This study further explains how the individual determinants affect online purchase decision making directly and indirectly though value perception. The findings of this study offer Internet vendors practical suggestions for increasing online sales. This study, with its results, also helps advance knowledge of electronic commerce. © 2009 Wiley Periodicals, Inc.     

EDITOR'S COMMENTS

ABSTRACT

The key to improving pricing methods lies in establishing a clear relationship between the price paid by customers and the value received. A company's understanding of how a decision in its pricing policy will affect the perceptions its potential consumers will have of these prices, is fundamental if it wishes to make sure that its offer is properly perceived. Thus, if companies identify the rules used by purchasers to price their products, they will be successful in getting the objective signal they send via their communication strategies to be perceived in the desired manner. This analysis shows that both monetary and non-monetary costs are considered by consumers when determining the final cost perception associated with the acquisition of a good, and that the understanding of the internal reference price is essential for determining the nominal price effect on the monetary component of total sacrifice.     

Comment on “A new simple square root option pricing model”

Câmara A. and Wang Y.‐H. ( 2010 ) introduce a simple square root option pricing model where the square root of the stock price is governed by a normal distribution. They show that their three‐parameter option pricing model can outperform the Black–Scholes option pricing model. We demonstrate that their assumption possesses an internal inconsistency in that the square root of the stock price can take on negative values. We generalize and revise their assumption so that the internal inconsistency can be avoided, and introduce a new square root option pricing model. The difference in option prices calculated from the two models may not be trivial. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark     

Large format retailing in the US: a consumer experience perspective

Proponents of relationship marketing seek to develop and maintain long-term ties to their customers in the hope of having a loyal customer base. In this paper we examined large format retailing from the perspective of consumers’ experiences in these stores. Focus group interviews were conducted in two major US metropolitan areas and one medium size market. After analyzing the focus group content, several themes emerged related to patronage of large format retailers. These included the accuracy of prices when products were scanned and loyalty to store personnel based on familiarity. Large format supercenters were especially chided for their bigness and potential negative impact on smaller retailers. Attending to the details of the food retail business (accurate pricing, product availability, continuity of personnel) are ways in which consumers’ experiences in retail stores might be improved. Numerous choices and a diverse array of retail formats are available to consumers in the US market. Managerial implications are discussed in the light of a changing retail landscape.     

There is nothing permanent except change—analyzing individual price dynamics in “pay-what-you-want” situations

This study is examines the dynamics in prices paid in “pay-what-you-want” situations over multiple customer–seller transactions on an individual customer level. The analysis of potential dynamism in prices paid allows for an assessment of the profitability of pay-what-you-want pricing for sellers of frequently bought products and services. To empirically validate the framework, the authors conduct a field study that focuses on the aggregate and individual dynamics in prices paid over customers’ multiple purchases. Using latent growth modeling, the authors find significant but declining decreases in prices paid. Further, they identify stable individual and relational difference factors which predict steeper or more gradual declines in prices paid. Customers’ individual preferences for fairness and price consciousness as well as their overall satisfaction with the seller alleviate price declines. The authors discuss the practical and theoretical implications of these findings.     

风险喜好型零售商主导的双渠道定价策略研究

一个由生产商和零售商组成的供应链中决策的顺序为:零售商率先根据自己掌握的市场信息公布最大潜在订单数量,生产商根据最大订单数量来调整其批发价格和直销渠道价格,最后零售商才确定其最优订货数量。研究表明,在一个由风险喜好型的零售商和一个风险规避型的供应商组成的供应链中,零售商风险偏好系数超过某一特定值时,随着需求方差的增加,零售渠道最优定价会越来越高;而对于风险规避型供应商,则是随着需求方差和(或)供应商风险规避程度的增加,会选择较低的产品售价以期获得稳定的收入。     

Does Online Information Drive Offline Revenues?: Only for Specific Products and Consumer Segments!

While many offline retailers have developed informational websites that offer information on products and prices, the key question for such informational websites is whether they can increase revenues via web-to-store shopping. The current paper draws on the information search literature to specify and test hypotheses regarding the offline revenue impact of adding an informational website. Explicitly considering marketing efforts, a latent class model distinguishes consumer segments with different short-term revenue effects, while a Vector Autoregressive model on these segments reveals different long-term marketing response.We find that the offline revenue impact of the informational website critically depends on the product category and customer segment. The lower online search costs are especially beneficial for sensory products and for customers distant from the store. Moreover, offline revenues increase most for customers with high web visit frequency. We find that customers in some segments buy more and more expensive products, suggesting that online search and offline purchases are complements. In contrast, customers in a particular segment reduce their shopping trips, suggesting their online activities partially substitute for experiential shopping in the physical store. Hence, offline retailers should use specific online activities to target specific product categories and customer segments.     

大学生网上开店对电子商务专业实践的启示

随着电子商务在我国的飞速发展,C2C模式也开展得如火如荼。本文探讨了中国大学生网上开店的基本情况,分析了他们网上开店的好处和不足,最后指出了大学生网上开店对电子商务专业学生和电子商务实验教育的启示。     

The impacts of instructional video advertising on customer purchasing intentions on the Internet

As the application of the Internet has grown rapidly, electronic commerce is expected to become increasingly prosperous. In addition, since the launching of the Internet, more media in advertising have appeared. Online customer experiences and Web 2.0 are believed to be two of the driving forces behind the growth in online sales. A more advanced advertising medium is thus needed to stimulate customers’ purchasing intentions. One creative medium of advertising on the Internet is instructional video advertising. It provides instructions on how to operate the products being sold and/or on how the products function. Hence, the customers may in this way view the advertising, and finally the intention to purchase may be triggered. In order to explore how Internet instructional video advertising may affect customers’ purchasing intentions, we propose a new model that adopts the theory of reasoned action, the technology acceptance model, and others. We perform the survey to analyze how instructional video advertising may impact customers’ purchasing intentions.