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Consumer-driven demand and operations management models: a systematic study of information-technology-enabled sales mechanisms

Author: Netessine, Serguei ; Tang, Christopher S.Publisher: Springer, 2009.Language: EnglishDescription: 485 p. : Graphs/Photos ; 24 cm.ISBN: 9780387980188Type of document: BookBibliography/Index: Includes bibliographical references and indexContents Note: Includes chapter by Karan Girotra and Wenjie Tang "Strategic behavior in supply chains: information acquisition", p. 459-477
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Book Europe Campus
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Print HF5415.32 .C66 2009
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001196645
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Includes bibliographical references and index

Includes chapter by Karan Girotra and Wenjie Tang "Strategic behavior in supply chains: information acquisition", p. 459-477

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Consumer-Driven Demand and Operations Management Models A Systematic Study of InformationTechnology-Enabled Sales Mechanisms Contents Part I Rational Consumer Behavior: Endogenous Decision Making Mechanisms 1 Cheap Talk in Operations: Role of Intentional Vagueness ............................. 3 Gad Allon and Achal Bassamboo 1.1 Introduction ................................................................................................ 4 1.2 Classical Cheap Talk Game ........................................................................ 6 1.2.1 Model ........................................................................................... 6 1.2.2 Key Results .................................................................................. 7 1.2.3 Other Applications of the Classical Cheap Talk Model .............. 7 1.2.4 Discussion ................................................................................... 7 1.3 Service Application .................................................................................... 8 1.3.1 Model ........................................................................................... 8 1.3.2 Problem Formulation ................................................................. 10 1.3.3 Informative Equilibria ............................................................... 11 1.3.4 Non-informative and Other Equilibria ...................................... 16 1.4 Retail Application..................................................................................... 18 1.4.1 Model ......................................................................................... 19 1.4.2 No-Information and Full-Information Strategies ...................... 20 1.4.3 Cheap Talk Equilibrium ............................................................ 23 1.4.4 Remedies and Discussion........................................................... 26 1.5 Summary .................................................................................................. 31 1.6 The Past and the Future ........................................................................... 32 1.6.1 Future Research .......................................................................... 35 References ...................................................................................................... 35 2 Product Design in a Market with Satisficing Customers ............................ 37 Matulya Bansal and Costis Maglaras 2.1 Introduction .............................................................................................. 37 2.2 Literature Survey ..................................................................................... 42 2.3 Applications and Variations to Basic Model ........................................... 43 2.3.1 Delay Differentiation ................................................................. 44 2.3.2 Capacity Differentiation ............................................................ 44 2.3.3 Rationing Risk Differentiation.................................................... 45 2.3.4 No Capacity Constraint: Versioning of Information Goods .................................................................................... 46 2.3.5 Costly Quality Differentiation ................................................... 46 2.4 Analysis of General Model ....................................................................... 47 2.4.1 Model Assumptions ................................................................... 47 2.4.2 Structural Results ....................................................................... 47 2.4.3 Computation ............................................................................... 49 2.4.4 k < N Products ........................................................................... 50 2.5 Extensions ................................................................................................. 51 2.5.1 Capacity Differentiation ............................................................ 51 2.5.2 Multiple Quality Attributes ........................................................ 52 2.5.3 Duopoly ...................................................................................... 53 2.6 Concluding Remarks: Satisficers vs. Utility Maximizers......................... 55 2.7 Proofs........................................................................................................ 56 References ...................................................................................................... 60 3 The Effect of Assortment Rotation on Consumer Choice and Its Impact on Competition ................................................................... 63 Felipe Caro and Victor Martfnez-de-Albéniz 3.1 Introduction............................................................................................... 63 3.2 Literature Review ..................................................................................... 67 3.3 The Multi-period Utility Model with Satiation ........................................ 69 3.4 Competing on Assortment Rotation ......................................................... 71 3.4.1 The Competitive Setting ............................................................ 71 3.4.2 The Competitive Equilibrium..................................................... 73 3.5 Conclusions............................................................................................... 77 References....................................................................................................... 78 4 Models of Herding Behavior in Operations Management ............................. 81 Laurens G. Debo and Senthil K. Veeraraghavan 4.1 Introduction............................................................................................... 82 4.2 Related Literature ..................................................................................... 85 4.3 Herding in a Single Queue........................................................................ 86 4.3.1 The Model ................................................................................... 86 4.3.2 Insights from the Single-Queue Model........................................ 89 4.4 Herding and Queue Selection .................................................................. 91 4.4.1 The Model ................................................................................... 91 4.4.2 Insights from the Two-Queue Model: Homogeneous Customer Bases and Small Buffers ...................................... 95 4.4.3 Insights from the Two-Queue Model: Heterogeneous Customer Bases and Large Buffers ...................................... 98 4.4.4 Equilibrium Strategies: Numerical Examples with N = 25 ........................................................................... 100 4.4.5 The Effect of Herding on the Market Share and Blocking Probability of Service Providers with Small Buffers ............................................................... 103 4.4.6 Herding and Co-location of Service Facilities with Small Buffers ............................................................... 106 4.5 Discussion and Further Research Opportunities ..................................... 107 4.5.1 Introducing Asymmetry ............................................................ 108 4.5.2 Introducing Capacity Decisions of Firms ................................. 108 4.5.3 Empirical and Laboratory Testing of Herd Behavior in Queues ............................................................................. 109 4.5.4 Herding on Other Operational Information .............................. 110 References ..................................................................................................... 111 Part II Organizational Strategies for Managing Rational/Strategic Consumer Behavior 5 Internet-Based Distribution Channel for Product Diversion with Potential Manufacturer's Intervention ............................................. 115 Barchi Gillai and Hau L. Lee 5.1 Introduction ............................................................................................. 116 5.4 Literature Review .................................................................................... 119 5.3 Problem Description ................................................................................ 121 5.4 Retailer-Only Secondary Market............................................................. 123 5.4.1 The Impacts of the Secondary Market ...................................... 125 5.5 Manufacturer's Intervention .................................................................... 127 5.5.1 The Impacts of the Manufacturer's Intervention ...................... 132 5.6 Discussion and Conclusion ..................................................................... 141 5.7 Appendix ................................................................................................. 144 References ..................................................................................................... 153 6 Managing Client Portfolio in a Two-Tier Supply Chain ............................... 155 Basak Kalkanci and Seungjin Whang 6.1 Introduction ............................................................................................. 155 6.2 Literature Review .................................................................................... 158 6.3 The Basic Model...................................................................................... 160 6.4 The Bullwhip Effect with Multiple Clients ............................................. 161 6.5 Client Portfolio ........................................................................................ 163 6.6 Conclusion................................................................................................ 164 Appendix ....................................................................................................... 166 References ..................................................................................................... 176 7 Strategic Customer Behavior and the Benefit of Decentralization . . .......... 177 Xuanming Su and Fuqiang Zhang 7.1 Introduction ............................................................................................. 177 7.2 Durable Goods ......................................................................................... 178 7.2.1 Centralized System ................................................................... 179 7.2.2 Decentralized System ............................................................... 181 7.2.3 Longer Time Horizons ............................................................. 185 7.3 Perishable Goods .................................................................................... 186 7.3.1 Model Setting ........................................................................... 187 7.3.2 Centralized System ................................................................... 189 7.3.3 Decentralized System ............................................................... 191 7.4 Conclusion and Future Research............................................................. 196 Appendix ....................................................................................................... 198 References ..................................................................................................... 201 Part III Product Strategies for Managing Rational/Strategic Consumer Behavior 8 Is Assortment Selection a Popularity Contest? ............................................. 205 Aydin Alptekinoglu, Alex Grasas, and Elif Akçali 8.1 Introduction..............................................................................................206 8.2 Literature Review ................................................................................... 207 8.3 Models......................................................................................................208 8.3.1 Base Model: Assortment Decision for Exogenous Price and Return Policy ................................................................ 208 8.3.2 Extension 1: Assortment and Price Decisions for Exogenous Return Policy ....................................................214 8.3.3 Extension 2: Assortment and Return Policy Decisions for Exogenous Price ............................................................ 214 8.3.4 Extension 3: Assortment Decision for Multiple Periods ......... 214 8.4 Analytical Results and Numerical Observations .................................... 215 8.4.1 Optimal Assortment in the Base Model ................................... 215 8.4.2 Optimal Assortment and Price in Extension 1 ......................... 219 8.4.3 Optimal Assortment and Refund Policy in Extension 2 .......... 222 8.4.4 Optimal Assortment for Multiple Periods in Extension 3 ..................................................................... 224 8.5 Concluding Remarks ...............................................................................226 References......................................................................................................227 9 Product Design, Pricing, and Capacity Investment in a Congested Production System ...................................................................................... 229 Sergio Chayet, Panos Kouvelis, and Dennis Z. Yu 9.1 Introduction.............................................................................................. 229 9.2 Literature Review ................................................................................... 231 9.3 Basic Model and Assumptions ............................................................... 233 9.4 Quadratic Cost Functions........................................................................ 234 9.5 General Power Cost Functions ............................................................... 238 9.6 Conclusions and Current Research ......................................................... 241 Appendix ....................................................................................................... 243 References ..................................................................................................... 251 10 Selling to Strategic Customers: Opaque Selling Strategies ...................... 253 Kinshuk Jerath, Serguei Netessine, and Senthil K. Veeraraghavan 10.1 Introduction........................................................................................... 253 10.2 Literature Review ................................................................................. 257 10.3 Firm's Selling Strategies Under Deterministic Demand....................... 263 10.3.1 Selling Through Firms' Direct Channels ................................ 263 10.3.2 Opaque Selling ....................................................................... 265 10.3.3 Comparison of Strategies Under Deterministic Demand ...... 269 10.4 Modeling Uncertain Demand: The Effect of Uncertainty on Opaque Selling Strategies............................................................. 271 10.4.1 Selling Though Firms' Direct Channels ................................. 272 10.4.2 Opaque Selling ....................................................................... 274 10.4.3 A Comparison of Two Selling Strategies .............................. 276 10.4.4 Concluding Discussion .......................................................... 277 10.5 Other Related Considerations and Future Research ............................. 279 10.6 Appendix A: Deterministic Demand .................................................... 282 10.6.1 Proof of Lemma 1 .................................................................. 282 10.6.2 Proof of Proposition 1 ............................................................ 282 10.6.3 Proof of Proposition 2............................................................. 283 10.6.4 Proof of Lemma 2................................................................... 284 10.6.5 Equilibrium Characterization for the Low-Demand Case (If Consumers Do Not Strategically Wait) ................ 288 10.6.6 Proof of Proposition 3............................................................. 290 10.6.7 Equilibrium Characterization for the High-Demand Case (If Consumers Do Not Strategically Wait) ................ 10.6.8 Proof of Proposition 4............................................................. 10.7 Appendix B: Uncertain Demand........................................................... 10.7.1 Proof of Proposition 5............................................................. 10.7.2 Proof of Proposition 6............................................................. References .................................................................................................... 290 291 292 292 296 299 11 Competing Through Mass Customization ................................................... 301 Ali K. Parlaktiirk 11.1 Introduction 302 11.2 Model..................................................................................................... 305 11.3 Pricing Game......................................................................................... 307 11.4 The Adoption Game.............................................................................. 309 11.5 MC vs. Traditional Approach ............................................................... 311 11.6 Comparative Statics: Conditions Favoring MC.................................... 314 11.6.1 Market Size A ........................................................................ 315 11.6.2 Customization Rate ................................................................ 316 11.7 Concluding Remarks ............................................................................ 316 References .................................................................................................... 318 Part IV Operational Strategies for Managing Rational/Strategic Consumer Behavior 12 Counteracting Strategic Consumer Behavior in Dynamic Pricing Systems 323 Yossi Aviv, Yuri Levin, and Mikhail Nediak 12.1 Introduction........................................................................................... 323 12.2 The Effectiveness of Price Segmentation in Face of Strategic Customers ..................................................................... 324 12.2.1 Models with Limited Inventories............................................ 327 12.3 Price Commitments .............................................................................. 333 12.4 Capacity Rationing ............................................................................... 334 12.4.1 Capacity Commitments ......................................................... 342 12.5 Internal Price-Matching Policies .......................................................... 343 12.5.1 Internal Price Guarantees Under Strategic Consumer Behavior............................................................. 345 12.6 Limiting Inventory Information............................................................ 351 References .................................................................................................... 351 13 Mitigating the Adverse Impact of Strategic Waiting in Dynamic Pricing Settings: A Study of Two Sales Mechanisms.............................. 353 Yossi Aviv, Christopher S. Tang, and Rui Yin 13.1 Introduction........................................................................................... 353 13.2 Model Preliminaries ............................................................................. 355 13.3 Two Inventory Display Formats .......................................................... 356 13.3.1 The "Display All" (DA) Format ............................................ 356 13.3.2 The "Display One" (DO) Format............................................ 360 13.3.3 Summary of Numerical Results.............................................. 363 13.4 Two Operating Regimes........................................................................ 364 13.4.1 No Reservation Regime ......................................................... 364 13.4.2 With Reservation Regime....................................................... 365 13.4.3 Comparison of Payoffs .......................................................... 368 13.4.4 Summary of Numerical Results ............................................. 368 13.5 Conclusions........................................................................................... 369 References .................................................................................................... 369 14 The Impact of Strategic Consumer Behavior on the Value of Operational Flexibility .................................................... 371 Gerard P. Cachon and Robert Swinney 14.1 Introduction .......................................................................................... 372 14.2 Modeling Traditional and Flexible Production .................................... 373 14.3 Modeling Strategic Consumer Purchasing ........................................... 375 14.4 Equilibrium Analysis ............................................................................ 378 14.4.1 Traditional Replenishment .................................................... 379 14.4.2 Flexible Replenishment ..........................................................380 14.5 The Value of Flexibility ....................................................................... 382 14.5.1 The Relative Value of Flexibility .......................................... 14.5.2 The Absolute Value of Flexibility ......................................... 14.5.3 Drivers of the Value of Flexibility ........................................ 14.5.4 Consumer and Social Welfare ............................................... 14.6 Extensions and Complications ............................................................. 14.6.1 Dynamic Sale Pricing and Consumer Heterogeneity............. 14.6.2 Uncertain Consumer Valuations and Learning...................... 14.6.3 Alternative Forms of Flexibility............................................. 14.7 Conclusions........................................................................................... References .................................................................................................... 382 385 387 388 390 390 391 392 394 394 15 Capacity Rationing with Strategic Customers .......................................... 397 Qian Liu and Garrett van Ryzin 15.1 Introduction .......................................................................................... 398 15.2 Capacity Rationing Under Rational Expectations ............................... 400 15.2.1 Model Formulation ................................................................ 400 15.2.2 Optimal Stocking Policy......................................................... 402 15.2.3 Extensions to the Basic Model............................................... 405 15.2.4 Oligopolistic Competition ..................................................... 407 15.3 Capacity Rationing When Customers Learn ........................................ 409 15.3.1 Adaptive Learning Model.......................................................409 15.3.2 Optimal Capacity Decisions Over Time ................................ 413 15.4 Relation to Rational Expectation Equilibrium...................................... 417 15.5 Conclusions .......................................................................................... 418 References .................................................................................................... 419 Part V Pricing Strategies for Managing Rational/Strategic Consumer Behavior 16 Shaping Consumer Demand Through the Use of Contingent Pricing 423 Eyal Biyalogorsky 16.1 Introduction .......................................................................................... 423 16.2 Contingent Pricing ............................................................................... 425 16.3 Contingent Pricing with Strategic Consumers...................................... 426 16.3.1 Contingent Pricing as a Truth-Revealing Mechanism ........... 430 16.4 Conclusion............................................................................................. 432 Appendix ...................................................................................................... 433 References..................................................................................................... 434 17 Strategic Consumer Response to Dynamic Pricing of Perishable Products 435 Minho Cho, Ming Fan, and Yong-Pin Zhou 17.1 Introduction........................................................................................... 435 17.2 Literature Review ................................................................................. 437 17.3 Strategic Consumer Behavior .............................................................. 439 17.3.1 Dynamic Pricing Model ......................................................... 439 17.3.2 Threshold Purchasing Policy ................................................. 440 17.3.3 Exponential Valuation of the Consumers .............................. 441 17.4 Simulation Results ............................................................................... 444 17.4.1 Benefits to the Strategic Consumer........................................ 444 17.4.2 Impact on the Seller ............................................................... 446 17.5 Extensions ............................................................................................ 449 17.5.1 Multiple SCs and a Simplified Threshold Price Policy ......... 449 17.5.2 Constraints on Strategic Consumer Waiting.......................... 450 17.6 Conclusions and Future Research......................................................... 452 Appendix ...................................................................................................... 453 References..................................................................................................... 457 18 Strategic Behavior in Supply Chains: Information Acquisition ............... 459 Karan Girotra and Wenjie Tang 18.1 Introduction........................................................................................... 460 18.2 Motivating Example: Costume Gallery ............................................... 461 18.3 Literature Review ................................................................................ 464 18.4 Independent Retailers and Products ..................................................... 465 18.4.1 Model Setup............................................................................ 465 18.4.2 Case 1: No Advance Purchase Discounts ............................. 467 18.4.3 Case 2: Advance Purchase Discounts are Offered ................. 468 18.5 Advance Purchase Discounts: Risk Sharing and Supply Chain Performance ...................................................................................... 470 18.6 Application at Costume Gallery .......................................................... 472 18.7 Conclusions and Future Work.............................................................. 476 References..................................................................................................... 476 Index ..................................................................................................................... 479

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