Vertical structure and the risk of rent extraction in the electricity industry

This paper studies how competition and vertical structure jointly determine generating capacities, retail prices, and welfare in the electricity industry. Analyzing a model in which demand is uncertain and retailers must commit to retail prices before they buy electricity in the wholesale market, we show that welfare is highest if competition in generation and retailing is combined with vertical separation. Vertically integrated generators choose excessively high retail prices and capacities to avoid rent extraction in the wholesale market when their retail demand exceeds their capacity. Vertical separation eliminates the risk of rent extraction and yields lower retail prices.     

Pricing policy and coordination for a two-layer supply chain of duopolistic retailers and socially responsible manufacturer

This paper explores channel coordination and profit distribution in a two-layer socially responsible supply chain that consists of a manufacturer and two competitive retailers. In manufacturer-Stackelberg game setting, the manufacturer exhibits corporate social responsibility and the retailers play Cournot and Collusion games. Besides comparing the optimal decisions of the retailers two game behaviours, the paper analyses the effects of social responsibility on the optimal decisions. It is found that two-part tariff contract resolves channel conflict and provides win–win outcome for a specific range of the franchise fee and it is always possible to find a particular profit split using Nash bargaining product. With increasing social responsibility of the manufacturer, the coordinated wholesale prices of the manufacturer may be both decreasing or ‘U’ shaped and decreasing when the market potentials of the retailers are almost the same or significantly different. Also, at least one coordinated wholesale price is less than the manufacturer's marginal cost. The proposed model is illustrated by a numerical example.     

Outsourcing with labor management

A vertically integrated Labor Managed (LM) monopoly is compared to a decentralized market arrangement where production is segmented among an upward LM firm producing an input and a downstream LM manufacturer of the final good. Unlike what usually occurs among profit maximizing firms, the vertical arrangement with outsourcing is socially superior to the vertically integrated one. However, the upstream section has an incentive to outsource, while the downstream section would rather oppose it.     

PROBING PARTIAL CHAINING UNDER SPATIAL COMPETITION IN VERTICAL MARKET STRUCTURE

This paper probes impacts of partial chaining upon the cost structures of not only the chained and independent distributors under spatial competition, but also the monopolistic producer who manages differentiated distribution channels for heterogeneous retailers simultaneously. We assume vertically related but decentralized markets in upstream and downstream stages. Upon chaining, market areas of each chained (independent) store increase (decrease), the related retail prices decline (rise) and profits increase (decrease). Chaining also tends to lower the wholesale prices for the chain stores generally. While aggregate consumer surplus increases, profit for the producer not even directly chained also increases. Social surplus increases with chaining at the expense, however , of not only the remaining independent stores and their customers, but also the chain store's own customers partly at the market periphery.     

Direct Marketing in Oligopoly

We consider a game in which symmetric manufacturers decide whether to set up sites (e.g., web sites) where consumers can buy their products directly. Following this decision, the manufacturers choose quantities to sell to the retailers, and then the manufacturers with direct‐sales sites and retailers choose quantities to sell to the consumers. We show that since an increase in the number of retailers may drive the direct‐selling manufacturers from the retail market, it may raise the retailers’ profit and reduce social welfare. Finally, we discuss two cases: an oligopolistic wholesale market and a market with price competition and differentiated products.     

The Profit‐Maximizing Case for Corporate Social Responsibility in a Bilateral Monopoly

We analyze a stylized distribution channel (bilateral monopoly) model where an upstream manufacturer sells output to a downstream retailer. In a two‐stage linear demand game setting, we show that a two‐part contract, consisting of a wholesale price and corporate social responsibility (CSR) component, can be utilized by the manufacturer to fully coordinate and control its retailer. Thus, a CSR contract can be used in place of the traditional two‐part tariff scheme (wholesale price and fixed franchise fee) to optimally coordinate the marketing channel. Our model provides a novel theoretical profit‐maximizing rationale for the strategic use of CSR. Copyright © 2013 John Wiley & Sons, Ltd.     

基于损失规避型零售商的供应链协调契约研究

在现代市场竞争日趋激烈的环境下,企业决策者的行为偏好对企业的成败有重大的影响。文章在前景理论的基础上,考虑损失规避型零售商与风险中性的供应商组成的供应链系统。在零售商面临需求受价格影响的前提下,在批发价格契约下分析损失规避特性对决策者行为的影响,最后通过价格补贴契约实现供应链的协调。     

不对称信息的供应链激励机制研究

研究由单个制造商和单个零售商组成二级供应链,基于市场需求是线性的,且受价格与销售努力的影响。首先,研究在对称信息下,集中模式和分散模式两种情况下的供应链,求出制造商和零售商使得利润达到最优时的最优批发价及销售价;其次,研究了在信息不对称情况下,制造商的机制设计问题,得到了制造商激励批发价的表达式以及零售商的最优零售价的公式;最后利用实例仿真对模型进行分析,结果表明该激励机制对整个供应链的收益有改善作用。     

Vertical separation of transmission control and market efficiency in the wholesale electricity market

This study examines how vertical separation of transmission control affects the wholesale market efficiency in the electric power industry. We analyze a unique regional electricity wholesale market in the U.S. where initially restructuring only occurred in the transmission sector. Following a commonly-used best dispatch model (Wolfram, 1999; Borenstein et al., 2002), we simulate competitive benchmark prices and compare with the best estimates available for actual prices to measure price-cost markups of the wholesale market. Empirical results demonstrate that the vertical separation of transmission control led to a significant increase in market markups in peak-load hours, documenting evidence of enhanced market power. Although we also find a reduction in the price-cost margin in low-demand hours, we reserve caution for this finding.     

考虑强势零售商压价和投资行为的供应链协调

中国流通产业的零供矛盾日益凸显,针对强势零售商的压价问题构建博弈模型并分析其对供应链协调的影响。在由单制造商和单零售商构成的二级供应链中,考虑零售商在主导产品零售价格的同时,通过增加广告投入或提高服务水平等市场投资措施刺激产品需求,探讨当零售商运用其较强的议价能力对制造商提出的批发价进行强制压价时,双方如何通过合作博弈寻找最佳策略。发现在一定的条件下,强势零售商的压价行为不仅可以提升品牌商誉,更能帮助实现供应链协调。     

Reverse Pricing and Revenue Sharing in a Vertical Market

Advancing in information technology has empowered firms with unprecedented flexibility when interacting with each other. We compare welfare results in a vertical market (e.g., manufacturers and retailers) for several types of pricing strategies depending upon the following: (1) which side (retailers or manufacturers) chooses retail prices; and (2) whether there is revenue sharing or linear pricing between the two sides. Our results are as follows. Under revenue sharing, retail prices (and thus industry profits) are higher if and only if they are chosen by the side featuring less competition. Under linear pricing, however, retail prices are higher if they are chosen by the side featuring more competition (for linear demand functions). Relative to linear pricing, revenue sharing always leads to lower retail prices, higher consumer surplus and social surplus. However, the comparison on industry profits depends on the demand elasticity ratios. Revenue sharing raises industry profits when the elasticity ratios are small, but the results are reversed when the elasticity ratios are large. Copyright © 2014 John Wiley & Sons, Ltd.     

A Study of Vertical Integration and Vertical Divestiture: The Case of Store Brand Milk Sourcing in Boston

This article investigates whether a retailer’s store brand supply source impacts vertical pricing and supply channel profitability. Using chain‐level retail scanner data, a random coefficients logit demand model is estimated employing a Bayesian estimation approach. Supply models are specified conditional on demand parameter estimates. Bayesian decision theory is applied to select the best fitting pricing model. Results indicate that a vertically integrated retailer engages in linear pricing for brand manufacturers’ products while competing retailers make nonlinear pricing contracts with brand manufacturers for branded products and store brands. A simulated vertical divestiture based on real world events provides evidence for improved channel efficiency.     

Dumping, adjustment costs and uncertainty

Domestic demand uncertainty in the presence of adjustment costs can cause profit-maximizing firms to sell output abroad at a loss. Firms may dump output at prices below long-run marginal and average productions costs with probability arbitrarily close to one. The model predicts dumping is particularly likely in process industries such as steel. Closed form dumping solutions and interesting comparative statics are obtained. Also, the effect of domestic competition on dumping is examined. I find domestic competition increases total dumping, although a monopolist maximizing output subject to a zero expected profit constraint will dump more than a competitive industry.     

基于供应链金融的参与者决策问题研究

本文针对季节性存货质押融资业务,考虑核心企业以回购形式参与其中的模式特征及成本收益情况,建模分析了风险中性的借款企业的再订购决策,然后通过借款企业与核心企业的博弈,分析了风险中性的核心企业的最优批发价与回购率决策组合。研究结果表明:季节性产品的需求大于质押产品时,借款企业会选择供应链金融来增加自己的库存以实现预期利润最大化,核心企业的回购使借款企业预期收益增加。但是,其必须针对借款企业的再订购策略设定合理的批发价格与回购率才能使决策最优,核心企业的回购在一定程度上也增加了自己的成本。     

The Low‐Quality Advantage in Vertical Product Differentiation

By assuming a triangular distribution of consumers' willingness to pay for quality, this paper makes use of the stylized fact that low‐income households are more numerous than high‐income households, and thus, income distributions are right‐skewed. Accordingly, we present a straightforward two‐firm, two‐stage vertical product differentiation model with quality‐dependent marginal production costs, where the firm offering the low‐quality product has the larger market share and profit than the top‐quality competitor. This can be termed low‐quality advantage and may explain the success of large retailers serving the masses by offering low‐quality products. Copyright © 2016 John Wiley & Sons, Ltd.     

Endogenous vertical structure and trade policy in an import-competing market

We examine the endogenous determination of a vertical market in an import-competing market with import tariff. We show that if firms commit to vertical organization before the government's commitment to trade policy, the home and foreign firms choose vertical separation and vertical integration, respectively, at equilibrium under Bertrand competition. Under Cournot competition, the subgame perfect Nash equilibrium entails both firms separating their retailers. Comparing profits between Bertrand competition to Cournot competition, we find that upstream manufacturer's profit can be higher under Bertrand competition with integration than under Cournot competition with separation when comparing foreign upstream manufacturer's profit.     

Intermediated surge pricing

Although Uber and Lyft are known for their flexible “surge pricing,” they are surprisingly rigid in another way: each firm takes a constant percentage of passenger fare whether or not there is a surge. In this paper, I investigate the possible reasons for, and the impact of, this rigidity. I study a market in which a profit‐maximizing intermediary facilitates trade between buyers and sellers. The intermediary sets prices for buyers and sellers, and keeps the difference as her fee. Optimal prices increase when demand increases, that is, shifts right. If a demand increase is due to an increase in the number of ex ante symmetric buyers, then the intermediary's optimal percent fee decreases. If, instead, a demand increase is due to a reduction in the elasticity of demand, then the intermediary's optimal percent fee increases. In either case, if the intermediary keeps a constant percent fee regardless of shifts in demand, as is the case with Uber and Lyft, then surge pricing (i.e., the ratio of price during high demand to price during low demand) is amplified on one side of the market and diminished on the other side.     

基于库存调剂的易逝品供应链合作利益分配问题探讨

本文将解决多人合作博弈问题的Shapley值方法用于解决两级易逝品供应链合作利益分配问题。考虑由一个供应商和两个零售商所组成的两级供应链模型,零售商与供应商不合作时,零售商根据供应商的批发价确定订货量,合作时共同决定库存,零售商之间的合作为共同决定订货量且通过库存调剂(转运)共享库存,三方合作可获最大利益,采用Shapley值法可合理分配合作利益,从而使合作更稳定。     

THE ECONOMIC THEORY OF VERTICAL RESTRAINTS

Abstract.  The types of contracts arising in a typical vertical manufacturer–retailer relationship are more sophisticated than a simple uniform price. In addition to setting per unit prices, manufacturers and retailers also revert to non-linear pricing and non-price instruments. These instruments or contracts are referred to as vertical restraints and can take the form of franchise fees, resale-price maintenance, exclusive dealing, exclusive territories and slotting allowances. The use and the effects of one type of instrument versus another depend crucially on specific market assumptions upstream and downstream and on the division of bargaining power between manufacturers and retailers. This paper surveys the industrial organization literature on retail pricing and shows that vertical restraint instruments have important effects on producer and consumer prices, market structure, efficiency and welfare.     

A transaction cost approach to a paradox in international marketing

Why do firms that make specific downstream investments as they start international operations, sometimes turn to more market-like arrangements as they gain international experience and their international sales increase? This paradox in international marketing is the key question to be addressed in this article. We use the concept of dynamic or temporary governance costs to examine the paradox. The pattern of internationalization in the Norwegian farmed salmon industry provides an example whereby Norwegian exporters established their own sales offices in several international markets in the early stages of internationalization, but subsequently disintegrated vertically and came to rely on more market-like arrangements. An analysis of the internationalization of this industry suggests that, over time, the market provided better capabilities than vertical integration. This reduced the transaction costs, thus making vertical disintegration an efficient strategy.