Management Science

Abstract: In centrally managed systems (CMSs), the need for incentivization systems at the local management level is crucial to optimize overall performance. Three alternative incentive systems have emerged within the centralized resource allocation (CRA) framework, aiming to measure the contribution of decision-making units (DMUs) in CMSs. However, we identify inconsistencies within these approaches and present them through illustrative examples. First, existing methods may struggle to effectively distinguish between CRA-efficient and CRA-inefficient DMUs, potentially resulting in inappropriate penalties or rewards for some the DMUs. Second, they may encounter difficulty in differentiating among CRA-efficient DMUs, especially when dealing with non-extreme DMUs or masked data within the dataset. Third, these methods may lack precision in measuring the impact of non-extreme CRA-efficient DMUs on overall performance. To address these limitations, we first highlight certain misconceptions related to individual efficiency within CMSs in the existing literature. Subsequently, we establish a fundamental characterization of individual efficient DMUs by outlining necessary and sufficient conditions for categorizing a DMU as CRA-efficient. For the second and third limitations, we adopt an endogenous perspective to quantify the influence of each CRA-efficient DMU. This involves calculating the maxi- mum potential contribution of the DMU under evaluation in constructing the projection points of other DMUs. Furthermore, we propose a new method to handle masked data well in differentiating among CRA-efficient DMUs. We show the validity and applicability of our approaches using a real dataset.

Abstract: Pricing of technology products often follows a skimming strategy in which a firm charges the highest price at product launch then reduces the price over time to attract additional buyers. Price-skimming has not been adequately examined in the literature related to technology products. Most pricing models proposed in the literature consider only initial product purchases while ignoring repeat purchases. However, for technology products, frequent upgrades often result in substantial repeat purchases. To fill this void, we develop an optimization model that accounts for both initial and repeat purchases. We find that the effectiveness of price skimming is highly dependent on the rate of repeat purchases. When the repeat purchase rate is low, firms may be better off delaying price reduction to accumulate more profit earlier in the product lifecycle, thus compensating for the decline in sales that occurs later in the lifecycle. For example, price skimming may not be the optimal pricing strategy for fad products with low repeat-purchase rates due to the product losing popularity in a short time period. Furthermore, contrary to common expectations, in markets highly sensitive to price changes firms may get away with charging a higher introductory price but must decrease the price over time to motivate sales.

Abstract: It has become increasingly typical for the upstream suppliers to invest in direct sales channels and compete with the downstream manufacturer. The oft-called phenomenon of supplier encroachment allows the supplier to benefit from both the wholesale to the manufacturer and the sale to end customers. However, from the manufacturer’s perspective, encroachment may suggest the supplier’s lack of reliability, which can contribute to the breakdown of supplier-manufacturer collaboration. In response to the supplier’s encroachment, the manufacturer can change its supplier(s); while the encroaching supplier might face consequences (e.g., the manufacturer dropping the supplier to seek new partnerships). The existence of future outsourcing alternatives for the manufacturer and the future consequences for the supplier has not been studied in the extant literature. In this paper we propose a two-period game-theoretic approach to supplier encroachment; where the downstream manufacturer outsources the production to a group of suppliers that are characterized by a low-quality supplier without encroachment capabilities, and a high-quality supplier with encroachment capabilities, i.e., capable of launching its own independent product. We show that (a) an increase in the quality of the encroaching supplier’s independent product can convince the manufacturer to redirect its wholesale order from the non-encroaching supplier to the encroaching supplier and simultaneously boost the manufacturer’s profits, (b) as the quality of the non-encroaching supplier is improved, the manufacturer may opt to drop the non-encroaching supplier and redirect its wholesale order to the encroaching supplier instead, and (c) an improvement in the qualities of the encroaching and non-encroaching suppliers might decrease their corresponding profits. Accordingly, we offer actionable guidelines for practitioners; in particular, we help practitioners navigate the competitive outsourcing landscape under threat of encroachment and advise them on the counter-productive impacts of quality improvements.