WRITING: NOTES ON AO

This morning I had a discussion with A, mainly on the pooling equilibrium.

The basic model is as follows. The supplier S has two distribution channels: direct sell to the end consumers, and through a retailer R. The retailer is more efficient in retail operations with less retail cost. However, the retail channel suffers efficiency loss due to¬† double marginalization (DM) (we assume that the channel is managed by the wholesale price contract). In addition, the supplier’s type of retail cost c_i is his private information, high or low. The consumer demand is linear. Both parties are risk-neutral and profit maximizing.

We frame the problem as a signaling game. First, S learns his type c_i and sets wholesale price w(c_i). Second, R orders quantity q_R. Finally, S delivers q_R and sells q_S directly to the market. Hence the market clearing price is P= a - b(q_R+ q_S). The payoffs for R and S are
(P-w)q_R and Pq_S + c_i(q_S + q_R), respectively.

A will have a draft this weekend. Afterwards I need one more week to finalize it.

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[Key West, FL, Spring, 2015]

Day 125, 10PTS, 2.20

[ROUTINE]
RUN: 9MPH, 10MIN, 1.5MILES;
LEARN: 0;
SWIM: 20R;

[OTHERS]
AO: DISCUSSION WITH AO, 9:40-10:30AM;
LUNCH WITH M AT HUB;

[DISCIPLINE]
WRITE THE LETTER FOR MB, 10MIN;
HAIRCUT, 3PM-4:30PM, \$21.5;
BUY SWIMMING CAP (10) AND BASKETBALL SHOES (70), SPORTS AUTHORITY, 20MIN;

[HAPPY MOMENT]
MAKE PROGRESS ON AO.

2016-01-20 12.36.14