Leveraging uncertainty through backorder

Che, Hai; Narasimhan, Chakravarthi; Padmanabhan, Vineet

doi:10.1007/s11129-010-9086-8

Cited by 8 publications

(3 citation statements)

References 15 publications

(22 reference statements)

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“…Subsequent research studied price discrimination aided by additional marketing tools, such as coupons (Narasimhan 1984), and the role of addressability and targetability in price-discrimination outcomes (Chen and Iyer 2002;Chen, Narasimhan, and Zhang 2001;Zhang 1995, 2002). Further research examined situations in which firms initially lack information on consumer preferences, but can learn those preferences from past consumer behavior (Koenigsberg, Muller, and Vilcassim 2008;Villas-Boas 1999), or could use timing as a price discrimination tool (Che, Narasimhan, and Padmanabhan 2010).…”

Section: Literature Reviewmentioning

confidence: 99%

The Role of Brand Image and Product Characteristics on Firms’ Entry and OEM Decisions

Caldieraro

2016

Management Science

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This paper shows that differences in brand image and product quality (horizontal and vertical differentiation) can govern the market-entry decisions of firms facing a market already served by an incumbent. The entrant might sell under its own brand, become a supplier to the incumbent (called an OEM arrangement), or both. Findings reveal that when firms are vertically but not horizontally differentiated, the entrant cannot profit from entering the market on its own, but firms can profit from OEM arrangements. When firms are both vertically and horizontally differentiated, the entrant profits by simultaneously entering the market and establishing an OEM arrangement with the incumbent. This is an interesting outcome because in competitive scenarios in which firms compete for consumers, the entrant will effectively sell its own product to the competitor. Furthermore, in those competitive scenarios, both buyer and seller increase profits by agreeing on a high wholesale price. When firms have the capability of producing all possible qualities of the products on their own, OEM relationships between firms can still happen in equilibrium. In this case, the most interesting result is the fact that, under certain conditions, firms may select to produce goods of different qualities and become suppliers to each other, despite the fact that they will end up selling the same product qualities to consumers. The reason for this outcome is that this dual buyer-seller arrangement causes a strategic effect that reduces the firms' aggressiveness when competing for consumers.

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Section: Literature Reviewmentioning

confidence: 99%

The Role of Brand Image and Product Characteristics on Firms’ Entry and OEM Decisions

Caldieraro

2016

Management Science

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“…In contrast, we endogenize the demand substitutions. Che et al consider two consumer segments with Bernoulli random demand for high‐segment consumers and deterministic demand for low‐segment consumers. Their focus is on analyzing when it is optimal to utilize backordering instead of substitution.…”

Section: Literature Reviewmentioning

confidence: 99%

The impact of demand uncertainty on product line design under endogenous substitution

Rong

Chen

Shen

2015

Naval Research Logistics

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The existing product line design literature devotes little attention to the effect of demand uncertainty. Due to demand uncertainty, the supply‐demand mismatch is inevitable which leads to different degrees of lost sales depending on the configuration of product lines. In this article, we adopt a stylized two‐segment setup with uncertain market sizes and illustrate the interplay between two effects: risk pooling that mitigates the impact of demand uncertainty and market segmentation that facilitates consumer differentiation. Compared to downward substitution, inducing bidirectional substitution through product line decisions including quality levels and prices can yield greater risk pooling effects. However, we show that the additional benefit from the risk pooling effect cannot compensate for the reduced market segmentation effect. We demonstrate that the presence of demand uncertainty can reduce the benefit of market segmentation and therefore the length of product lines in terms of the difference between products. We also propose three heuristics that separate product line and production decisions; each of these heuristics corresponds to one particular form of demand substitution. Our numerical studies indicate that the best of the three heuristics yields performance that is close to optimality. © 2015 Wiley Periodicals, Inc. Naval Research Logistics 62: 143–157, 2015

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“…The optimal design of a product line has been a core question in the product line literature dating back to the seminal article by Mussa and Rosen (1978) (see also Carlton and Dana 2008, Che et al. 2010, Dobson and Kalish 1988, Johnson and Myatt 2003, Krishnan and Zhu 2006, Moorthy 1984, and Villas‐Boas 2004). In these models, consumers differ in how much they value product quality.…”

Section: Introductionmentioning

confidence: 99%

The Design and Introduction of Product Lines When Consumer Valuations are Uncertain

Biyalogorsky

Koenigsberg

2014

Production and Operations Management

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This article presents a model of the design and introduction of a product line when the firm is uncertain about consumer valuations for the products. We find that product line introduction strategy depends on this uncertainty. Specifically, under low levels of uncertainty the firm introduces both models during the first period; under higher levels of uncertainty, the firm prefers sequential introduction and delays design of the second product until the second period. Under intermediate levels of uncertainty the firm's first product should be of lower quality than one produced by a myopic firm that does not take product line effects into consideration. We find that when the firm introduces a product sequentially, the strategy might depend on realized demand. For example, if realized demand is high, the firm's second product should be a higher‐end model; if demand turns out to be low, the firm's second product should be a lower‐end model or replace the first product with a lower‐end model.

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Leveraging uncertainty through backorder

Abstract: Demand uncertainty, Backorder, Product line choice, Product cannibalization, Adverse selection, Price discrimination, M31, D81, D86, D01, D21, D42, D90, L11, L12,

Cited by 8 publications

References 15 publications

The Role of Brand Image and Product Characteristics on Firms’ Entry and OEM Decisions

The Role of Brand Image and Product Characteristics on Firms’ Entry and OEM Decisions

The impact of demand uncertainty on product line design under endogenous substitution

The Design and Introduction of Product Lines When Consumer Valuations are Uncertain

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