Hubert Pun

• Ghamat, S.; Pun, H.; Critchley, G.; Hou, P., (Forthcoming), "Using Intellectual Property Agreements in the Presence of Supplier and Third-party Copycatting", European Journal of Operational Research.
  Abstract: When a manufacturer outsources the production of a product, it distributes its intellectual property (IP) into a supply chain that it may not be able to fully control. An IP agreement between a manufacturer and its suppliers is a popular solution to address the challenge of supplier-copycatting. The goal of this paper is to examine the impact of copycatting, from both the supplier and third-party firms, and the effectiveness of an IP agreement. Specifically, we use a game-theoretic approach to examine a system where a manufacturer outsources to a supplier. The supplier and a third-party firm decide whether or not to enter the market with copycat products while the manufacturer selects the level of marketing investment. The manufacturer can reduce the threat of supplier-copycatting by signing an IP agreement. However, we find that the manufacturer can be worse off from signing an IP agreement with its supplier, even if the IP agreement is costless and perfectly enforceable. We show that a manufacturer can deter copycat products through vertical integration and IP agreements and we outline the instances where each method is preferred. Furthermore, we find that the manufacturer may choose not to invest in quality improvements as a copycat deterrence strategy. We show that the supplier can benefit from the manufacturer’s decision to sign an IP agreement and that the supplier and the consumers can benefit from IP regulations against copycat products. Our paper demonstrates the strengths and limitations of various copycat deterrence strategies when a supplier and third-party may produce copycat products.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.ejor.2020.09.041

• Ovchinnikov, A.; Pun, H.; Raz, G., (Forthcoming), "The impact of inventory risk on market prices and profits", Decision Sciences.
  Abstract: Firms often must procure inventory/capacity before knowing what the demand will be, so there is a potential for a mismatch between inventory and demand, the “inventory risk.” We show that because of inventory risk, an increase in the number of competitors can lead to an increasing trend in market prices. Furthermore, we show that, ceteris paribus, because of how inventory risk impacts competitive behavior, firms may prefer to incur inventory risk rather than to avoid it. To illustrate the robustness of our results, we establish these findings using three complementary methodologies: (i) using data from a classroom experiment, (ii) using a quantal response equilibrium simulation to capture realistic irrationalities in managerial decisions under competition, and (iii) using a fully-rational Nash equilibrium model to capture the impact of the competition per se. That all three methods lead to identical qualitative findings reinforces the main message of our paper: inventory risk reverses the standard intuition for how an increase in the number of competitors impacts prices.

  Link(s) to publication:

  https://doi.org/10.1111/deci.12520

• Hou, P.; Pun, H.; Li, B., (Forthcoming), "To Collaborate or Not: Product Upgrading Strategy in a Competitive Duopoly Market", IEEE Transactions on Systems, Man, and Cybernetics: Systems.
  Abstract: Releasing an upgraded version of a product is a common tactic that firms use to maintain competitiveness. However, in light of the significant research and development investment required to upgrade products, a new industry trend has emerged in which incumbents collaborate with market entrants to innovate products. At the same time, such collaboration may lead customers to think that the upgraded products are more similar than those innovated without collaboration. Consequently, we consider the following tradeoff: collaboration allows firms to share the innovation investment, but leads to less differentiated products. Specifically, we consider a two-period model where the incumbent is a monopoly during the first period. This incumbent and a market entrant decide whether or not to collaborate to innovate their products, and the two firms sell their products during the second period. We find that both firms can benefit from a higher innovation cost. Moreover, the market entrant can be better off when the products become less differentiated due to collaboration, or when customers are impatient to buy in the second period. Finally, we find customers can be worse off when there is a lower innovation cost or more differentiated products.

  Link(s) to publication:

  http://dx.doi.org/10.1109/TSMC.2021.3061817

• Raz, G.; Druehl, C.; Pun, H., (Forthcoming), "Co-development versus Outsourcing: Who Should Innovate in Supply Chains", IEEE Transactions On Engineering Management.
  Abstract: Outsourcing has long been a strategy to decrease cost. Increasingly firms recognize the value in their supply chains and call on suppliers to innovate, both in products and processes. Innovation to increase quality and demand or to reduce costs is critical to firm and supply chain success. In a two-stage supply chain, we investigate the impact of focal firm and supplier innovation costs (and capabilities) on the type of outsourcing chosen and the resulting investments in process and product innovation. The focal firm determines whether to perform design (including product innovation in the form of quality enhancement) and manufacturing (including process innovation in the form of cost reduction) in-house, to outsource manufacturing/process innovation while insourcing design/product innovation, to outsource both manufacturing/process innovation and design/product innovation, or to co-develop product innovation while outsourcing manufacturing/process innovation. We also examine the conditions under which co-development is favorable given the supply chain faces potential positive and negative synergies from either the co-location of the innovation activities or costs of collaboration. After characterizing the optimal outsourcing decision, we find that the decision to outsource is more nuanced than simply which activities to outsource, but must include options to collaborate on particular activities, and specifically product innovation. We offer the insight to managers that co-development, despite costs of collaboration, can benefit the firm and result in higher profits. This occurs through the improvement of demand via higher quality products.

  Link(s) to publication:

  http://dx.doi.org/10.1109/TEM.2021.3086421

• Ghamat, S.; Zaric, G. S.; Pun, H., 2021, "Care-coordination: Gain-sharing Agreements in Bundled Payment Models", Production and Operations Management, June 30(5): 1457 - 1474.
  Abstract: We study gain-sharing agreements in a target price-minimum quality payment system. Our work is inspired by the Centers for Medicare and Medicaid Services’ (CMS) Comprehensive Care for Joint Replacement (CJR) bundled payment model. In our model, patients receive care from a hospital and a post-acute care provider. A third-party payer establishes target levels for total billing by the hospital and provider, and a target on the overall quality of care. The hospital and provider receive fee-for-service (FFS) billings during an episode of care, defined as the period that starts with an admission of a patient to the hospital and ends 90 days post-discharge. The hospital may also receive an incentive payment if total FFS billing by both parties is below the target price and total quality by both parties is above the minimum quality. The goal of the incentive payment is to encourage hospitals to enter into “gain-sharing” agreements with providers. We model the interactions between the three parties. We show that while using a gain-sharing agreement might be a “win-win-win” scenario for the three parties, good design of the payment scheme by the payer is essential to incentivize a hospital to participate in the bundled payment model (e.g., CJR) and sign a gain-sharing agreement with the provider. Furthermore, we illustrate that a target price-minimum quality bundled payment model would be more effective, in care-coordination, in healthcare settings where the provider is much more effective than the hospital in reducing its billing.

  Link(s) to publication:

  http://dx.doi.org/10.1111/poms.13332

• Pun, H.; Swaminathan, J. M.; Hou, P., 2021, "Blockchain Adoption for Combating Deceptive Counterfeits", Production and Operations Management, May 30(4): 864 - 882.
  Abstract: Counterfeiting is a severe problem in many sectors. There are two types of counterfeits: non-deceptive and deceptive. While both types are important business challenge, deceptive counterfeit have an additional negative impact – customers have a post-purchase regret if they expect to purchase a real product but ended up with a fake. The focus of this paper is on the setting that relates to deceptive counterfeits. Our paper is one of the first that examines the effectiveness of blockchain as a solution to a supply chain challenge. Specifically, the unique feature of blockchain that we model, which none of the traditional strategies studied in the literature is capable of, is that blockchain adoption changes the analysis from a deceptive counterfeit setting to a non-deceptive counterfeit setting. We also consider government being a decision maker and customers’ privacy concern from blockchain adoption, two features that are not examined in the existing literature. We consider a market with a manufacturer and a deceptive counterfeiter. The manufacturer can signal product authenticity either with blockchain technology or through pricing. The government can provide subsidy to encourage blockchain adoption. Blockchain should be used when the counterfeit quality is intermediate or when customers have intermediate distrust about products in the market. When customers have serious distrust about products, differential pricing strategy is more effective than blockchain adoption. If government provides subsidy, blockchain can be more effective than differential pricing strategy in eliminating post-purchase regret. Our results advocate for government providing subsidy because it benefits both customers and the society and could be a better approach than government enforcement efforts.

  Link(s) to publication:

  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3223656

  http://dx.doi.org/10.1111/poms.13348

• Pun, H.; Chen, J.; Li, W., 2020, "Channel Strategy for Manufacturers in the Presence of Service Freeriders", European Journal of Operational Research, December 287(2): 460 - 479.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.ejor.2020.04.004

• Wu, C.; Zhang*, Y.; Pun, H.; Lin*, C., 2020, "Partner selection criteria construction in sustainable supply chains: A systematic optimization model", Expert Systems with Applications, November 158.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.eswa.2020.113643

• Hou, P.; Zhen, Z.; Pun, H., 2020, "Combating Copycatting in the Luxury Market with Fighter Brands", Transportation Research Part E: Logistics and Transportation Review, August 140.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.tre.2020.102009

• Chen, J. Y.; Dimitrov, S.; Pun, H., 2019, "The impact of government subsidy on supply Chains’ sustainability innovation", OMEGA-INTERNATIONAL JOURNAL OF MANAGEMENT SCIENCE, July 86: 42 - 58.
  Abstract: Motivated by recently observed industry and government practices, in this paper we endogenize government subsidy in a research joint venture (RJV). In particular, we present a three-player game in which a government determines the amount of subsidy for a supply chain consisting of a manufacturer and a retailer conducting an RJV on a sustainable product. In addition to the retail and wholesale pricing decisions, the firms must determine the level of innovation effort as well as the division of innovation costs between the partners. In our analysis we consider two forms of RJV formation (retailer and manufacturer initiated) and two types of subsidy (per-unit production subsidy and innovation effort subsidy). We find that: (a) the government should never use both types of subsidies simultaneously for any cost-reduction research and development (R&D) effort, (b) whenever effort subsidy is present the government is indifferent as to how the RJV is formed, and (c) even though firms benefit most from initiating the RJV in many cases, the manufacturer is worse off by initiating the RJV if R&D effort increases per-unit production cost, innovation or production cost is high and only per-unit production subsidy is present.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.omega.2018.06.012

• Ghamat, S.; Zaric, G. S.; Pun, H., 2018, "Contracts to promote use of optional diagnostic tests in cancer treatment", Production and Operations Management, December 27(12): 2184 - 2200.
  Abstract: In this paper we examine performance-based payment contracts to promote the optimal use of an optional diagnostic test for newly diagnosed cancer patients. Our work is inspired by three trends: tremendous increases in the cost of new, advanced cancer drugs development of new diagnostic tests to allow physicians to tailor treatment to patients and changes in healthcare funding models that reward quality care. We model the interaction between two partiesa healthcare payer and an oncologist, in which the oncologist has private information about patients’ characteristics (adverse selection) and the payer does not know whether the oncologist takes the optimal course of action (moral hazard). We show that, in the presence of information asymmetry, a healthcare payer should never incentivize an oncologist to use a diagnostic test for all patients, even if the diagnostic test is available for free. Moreover, although the oncologist has additional information about a patient’s risk, he cannot always benefit from this private information. We also find that social welfare may not increase as a result of a decrease in the oncologist’s concerns regarding the health outcome of patients. Finally, we show that it is not always socially optimal to make a diagnostic test compulsory even if such a policy can be implemented for free.

  Link(s) to publication:

  http://dx.doi.org/10.1111/poms.12780

• Chen, J.; Pun, H.; Li, W., 2018, "Using online channel to defer the launch of discount retailing store", Transportation Research Part E: Logistics and Transportation Review, December 120: 96 - 115.
  Abstract: We examine how a manufacturer can use the strategy of opening online channel to manipulate the retailer’s decision on opening a discount store to sell off-price product supplied by a contract supplier that competes with the manufacturer’s product. We find that without the threat of discount store, the manufacturer would not establish an online channel when the setup cost is large. However, it has to establish an online channel to deter the retailer from introducing a discount store, even if the setup cost is high. We also find that the retailer can be more profitable when the cost of introducing a discount store is higher.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.tre.2018.10.012

• Ghamat, S.; Pun, H.; Yan, X. H., 2018, "Optimal Outsourcing Strategies when Capacity is Limited", Decision Sciences, October 49(5): 958 - 991.
  Abstract: Outsourcing the production of selected components to competitors is becoming more common among original brand manufacturers (OBM) however, OBMs’ increased attention to outsourcing and the growing demand in many markets can result in capacity allocation conflicts for the contract manufacturers. In this study, we consider a scenario in which the OBM decides whether to outsource to a third-party supplier or to a competitive contract manufacturer (CCM) who has the option of producing a competing product and also has limited capacity. This setting consists of two levels of competition: competition in the component market between the CCM and the spot market, and competition in the final-product market between the OBM and the CCM. The CCM first chooses the wholesale price and decides whether or not to sell a competing product to the customers. Next, the OBM decides the proportion of its component demand to outsource to the CCM, and then firms set the retail prices. We are interested to investigate the impacts of the CCM’s capacity and the impacts of these two levels of competition. We show that the OBM might multi-source its component demand only when competition in the final-product market is intense. We also find that when CCM’s capacity increases, demand may decrease while the retail price may increase. Moreover, the CCM can be worse off from having more capacity, even when CCM’s capacity is available for free. Our results also show that demand may increase when competition in the final-product market becomes more intense. Finally, we find that the value of having a third-party supplier to produce the component decreases amid the intensity of competition in the final-product market.

  Link(s) to publication:

  http://dx.doi.org/10.1111/deci.12298

• Yan, T.; Ribbink, D.; Pun, H., 2018, "Incentivizing Supplier Participation in Buyer Innovation: Experimental Evidence of Non-Optimal Contractual Behaviors", Journal of Operations Management, January 57(1): 36 - 53.
  Abstract: © 2017 Elsevier B.V. Original equipment manufacturers increasingly involve suppliers in new product development (NPD) projects. How companies design a contract to motivate supplier participation is an important but under-examined empirical question. Analytical studies have started to examine the optimal contract that aligns buyer-supplier incentives in joint NPD projects, but empirical evidence is scarce about the actual contracts offered by buying companies. Bridging the analytical and empirical literature, this paper compares optimal contracting derived from a parsimonious analytical model with actual behaviors observed in an experiment. In particular, we focus on how project uncertainty, buying company effort share, and buyer risk aversion influence three contractual decisions: total investment level, revenue share and fixed fee. Our results indicate significant differences between the optimal and actual behaviors. We identify various types of non-optimal contractual behaviors, which we explain from a risk aversion as well as a bounded rationality perspective. Overall, our findings contribute to the literature by showing that (1) the actual contractual behaviors could differ significantly from the optimal ones, (2) the actual contract design is sensitive to changes in project uncertainty and buying company effort share, and (3) the significant roles of risk aversion and bounded rationality in explaining the non-optimal contractual behaviors.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.jom.2017.12.001

• Chen, S-F. S.; Pun, H.; Wang, L., 2017, "A Pricing-Error Rule on Share Distribution in Equity Joint Ventures: The Bayesian Approach", Managerial and Decision Economics, December 38(8): 1172 - 1184.
  Abstract: Equity joint ventures (EJVs) are a popular governance mode of inter-firm cooperation that has attracted substantial research attention. The literature, however, still lacks a precise rule for the parents to follow in splitting the equity shares of an EJV, although share distribution is critical to almost all aspects of the co-ownership relationship. In this study, we fill this literature gap by taking the Bayesian approach to draw a pricing-error rule on share distribution in EJVs. More specifically, we contend that equity participation by two firms in an EJV allows profit sharing to correct for the errors that they might commit in pricing their inputs to the EJV. For profit sharing to fully nullify such pricing errors, the shares of an EJV must be split between the parent firms in a percentage combination that matches the relative sizes of their pricing errors. Because pricing errors are observable only afterward, share distribution in EJVs resembles a Bayesian process, in which the partners keep updating their estimates on pricing errors to adjust share distribution to a percentage combination that could best nullify their pricing errors. Thus, the eventual outcome of share adjustment is EJV buyout, in that the partner whose pricing errors remain substantial buys out the shares of the other whose pricing errors have become tolerable.

  Link(s) to publication:

  http://dx.doi.org/10.1002/mde.2855

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