Hubert Pun

• Ghamat, S.; Zaric, G. S.; Pun, H., (Forthcoming), "Care-coordination: Gain-sharing Agreements in Bundled Payment Models", Production and Operations Management.
  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.
• 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

• 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

• 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

• Pun, H.; DeYong, G. D., 2017, "Competing with Copycats when Customers Are Strategic", Manufacturing & Service Operations Management, July 19(3): 403 - 418.
  Abstract: In this paper, we use a two-period game theoretical model to examine the decisions of a manufacturer and a copycat firm who are competing for strategic customers. The manufacturer decides on the amount of its market expansion advertising investment in the first period and on its pricing strategy in both periods. Advertising increases the size of the pie, but eventually the manufacturer may end up inadvertently sharing the benefits with the copycat. After the first period, the copycat makes a market-entry decision, and, if it opts to enter, it also decides on a pricing strategy. The customers are forward-looking strategic, and they decide whether or not to buy, when to buy, and which product to buy. We find that, interestingly, lower quality levels of the manufacturer’s product may increase the manufacturer’s prices and profit. Moreover, the manufacturer may be worse off when customers are more likely to purchase its product immediately rather than wait for a price reduction or for the copycat’s product. Finally, the copycat may be worse off when customers withhold their purchases in the first period in anticipation of the possibility of copycat product becoming available in a later period.

  Link(s) to publication:

  http://dx.doi.org/10.1287/msom.2016.0613

• Begen, M. A.; Pun, H.; Yan, X. H., 2016, "Supply and Demand Uncertainty Reduction Efforts and Cost Comparison", International Journal of Production Economics, October 180: 125 - 134.
  Abstract: In industries like health care, consumer goods and agriculture, shortages are widely observed and the consequences can be costly. One of the main drivers of such shortages is the uncertain nature of supply and demand. To reduce uncertainties, sufficient information about supply and demand can be obtained by gathering relevant data (e.g., auditing suppliers and conducting market research). In this paper, we conduct an analysis to examine the impacts of supply uncertainty, demand uncertainty and uncertainty reduction efforts on production quantity and total cost. We show that in the absence of uncertainty reduction efforts, when the financial consequences of shortages are large or when the unit benefit is large, supply uncertainty is more costly than demand uncertainty. In addition, exerting supply uncertainty reduction effort always causes the firm to produce fewer units than exerting demand uncertainty reduction effort. Although supply uncertainty reduction effort delivers a larger degree of improvement to total cost (and hence, is more efficient), reduced supply uncertainty still leads to a higher system cost than does reduced demand uncertainty.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.ijpe.2016.07.013

• Pun, H.; Ghamat, S., 2016, "The Value of Partnership Under Competition: When Competitors May Be R & D Joint-Venture and Supply-Chain Partners for a Critical Component", International Journal of Production Economics, July 177: 1 - 11.
  Abstract: Conventional wisdom suggests that firms are worse off when the intensity of competition increases. However, when competitors have the option of cooperating as supply-chain and R& D joint venture (RJV) partners, the findings may be counterintuitive. In this paper, we consider two competing firms that must develop a critical component for their products. They must decide whether to develop a distinct component or to form an RJV with their competitor in order to develop a common component, and how much research effort should be exerted to improve the quality of this component. Forming an RJV partnership reduces R&D investment because both firms are jointly responsible for the research cost, but customers perceive the products to be less differentiated, thus leading to a more intense degree of competition between products. Moreover, one of the manufacturers does not produce this component and must therefore decide whether to outsource the production of this component to its competitor or to a third-party supplier. We examine the following two drivers of competition: (1) competition because the two base products are substitutable and (2) when the two firms form an RJV to develop a common component, the competition between these two products intensifies. Our main results show that both firms are better off when the competitiveness of the industry increases or when forming an RJV intensifies the competition between two products. Moreover, we investigate the robustness of our results to the firms’ bargaining powers by considering a generalized Nash bargaining game where firms negotiate on the RJV partnership decision, and we find that unless the supplier has a very large bargaining power, our results hold.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.ijpe.2016.03.018

• Pun, H., 2015, "The more the better? Optimal degree of supply-chain cooperation between competitors.", Journal of the Operational Research Society, December 12(66): 2092 - 2101.
  Abstract: We consider the outsourcing strategy problem of two competing original equipment manufacturers (OEMs) whose products are each made up of two components. The OEMs have different specializations, and therefore the component that each firm can produce in-house is different. Each firm must decide whether to outsource the other component to the competing OEM or to a third-party supplier. Prior research has demonstrated that competitors can be better off cooperating as supply-chain partners therefore, one might expect that, as long as the OEMs are not at a severe cost disadvantage, they should maximize their cooperation as supply-chain partners, especially when competition between products is strong. Interestingly, this study finds that more cooperation between competitors may actually be harmful. Under certain conditions, while one of the OEMs should outsource to the competing firm, the other should outsource to a third-party supplier, even when the third-party supplier is more expensive and the competition is intense.

  Link(s) to publication:

  http://dx.doi.org/10.1057/jors.2015.40

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