Designing input prices to motivate process innovation

Chen, Yongmin; Sappington, David E. M.

doi:10.1016/j.ijindorg.2008.10.008

Cited by 9 publications

(3 citation statements)

References 21 publications

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“…France, the Netherlands, Portugal) have adopted the delayed reciprocity rule, by which OLOs' fixed termination rates are set at incumbent's rates a number of years before (plus a mark up). 13 On the other hand, Chen and Sappington (2009) consider the linkage between regulated access prices and (the incumbent's) cost-reducing investment, while recent work on two-way access pricing and investment incentives analyzes the scope for using asymmetric regulation to boost OLOs' investments (Peitz, 2005). the presence of both infrastructured OLOs and resellers (Section 4.1).…”

Section: Relevant Literaturementioning

confidence: 99%

Dynamic access pricing and investment in alternative infrastructures

Avenali

Matteucci

Reverberi

2010

International Journal of Industrial Organization

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Section: Relevant Literaturementioning

confidence: 99%

Dynamic access pricing and investment in alternative infrastructures

Avenali

Matteucci

Reverberi

2010

International Journal of Industrial Organization

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“…Another argument put forth against separation is the risk of double marginalization (Bolle & Breitmoser, 2006; Chen & Sappington, 2009; Höffler & Kranz, 2011). Double markups occur when the wholesale buyer pays more for the input than the wholesaler’s marginal costs and raises prices above marginal costs (Spengler, 1950).…”

Section: Literature Reviewmentioning

confidence: 99%

Towards a vertically separated broadband infrastructure: The potential role of voluntary separation

Queder

2020

Competition and Regulation in Network Industries

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Public policymakers face the challenge of maintaining incentives for investments in fiber-to-the-premises (FTTP) infrastructure while simultaneously enabling effective competition. In that regard, the ability of vertically integrated operators to discriminate against downstream rivals is regarded as a major regulatory problem, especially as policing nondiscrimination obligations is notoriously difficult for vertically integrated operators. The European regulatory framework mandates functional separation to eliminate discrimination incentives. However, this measure comes with significant drawbacks and caveats and resembles a strong market and ownership intervention. The present article discusses how voluntary vertical separation can achieve the positive effect of a vertically separated industry structure without the need for strong market interventions. We use a discounted cash flow model to compare the financial attractiveness of wholesale-only and integrated business models for a greenfield FTTP rollout. We further discuss and test how public policymakers could positively affect the profitability of a wholesale-only business model. Based on our findings, we recommend public-policymakers and national regulation authorities to proactively define separation scenarios and respective ex ante regulation reductions precisely, to make adjustments to broadband state aid programs that favor wholesale-only providers, and to critically reflect the hampering effect volume and time discount wholesale tariff structures of incumbents have on the emergence of wholesale-only networks.

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“…Process improvement has been intensively studied in the operations management and industrial organization literature, including process improvement decisions in supply chains. Much work has been done on settings with downstream competition, focusing on issues such as the decision of the buyer (or retailer) to outsource production and process improvement (Gilbert et al, 2006), a shared supplier's process improvement decision when one of the buyers can integrate with the supplier (Chen and Sappington, 2009), and the supplier's process improvement decision in a context with competing supply chains when a supply chain can integrate (Gupta and Loulou, 1998;Gupta, 2008). Upstream competition between suppliers and supplier process improvement has been considered in Li (2013), for instance.…”

Section: Literature Reviewmentioning

confidence: 99%

Managing strategic inventories under investment in process improvement

Mantin

Veldman

2019

European Journal of Operational Research

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In supplier-retailer interactions, the retailer may carry inventories strategically as a bargaining mechanism to induce the supplier to drop the future wholesale price. As per Anand et al. (2008), the introduction of strategic inventories always benefits the supplier and possibly also the retailer if the holding cost is sufficiently low (due to the contract-space-expansion effect). Is such a move beneficial for the supply chain agents in the presence of process improvement efforts? Such efforts-initiated by suppliers-ultimately reduce production cost and may translate into lower wholesale prices as well as lower consumer prices. We find that strategic inventories may stimulate investment in process improvement when the holding cost is high (as it encourages the supplier to further reduce future cost to eliminate the need for strategic inventories), but may suppress such investment when the holding cost is low (as strategic inventories are cheap to stock and hence cannot be eliminated). Our key result, contrary to the existing literature, is that strategic inventories may be harmful to both supply chain agents in the presence of process improvement. In that case, the supplier effectively over-invests in process improvement efforts, inducing the retailer to reduce the stock of strategic inventories, while reversing the benefits of the contract-space-expansion effect. We also consider variations to the model, whereby the supplier may delay his investment decision, the holding cost may be a function of the wholesale price set by the supplier, consumers may behave strategically, and the planning horizon may consist of multiple periods.

show abstract

Designing input prices to motivate process innovation

Cited by 9 publications

References 21 publications

Dynamic access pricing and investment in alternative infrastructures

Dynamic access pricing and investment in alternative infrastructures

Towards a vertically separated broadband infrastructure: The potential role of voluntary separation

Managing strategic inventories under investment in process improvement

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