This paper studies a contract choice problem in the cross-sales setting. There are two competing manufacturers who sell substitutable products through two retailers to consumers. The demand is linear with uncertain intercept (potential). The retailers are better informed about the demand. There are two contract choices to organize the selling. The first is the wholesale price contract without information sharing, in which manufacturers decide based on the prior distribution of the demand, while each retailer j  use his more accurate demand signal f_j. The second contract choice is two-part tariff with information sharing, in which the manufacturers gain access to both signals (f_1,f_2) for decision making. All parties are risk-neutral and profit-maximizing.

The main result is that, all parties gain from two-part tariff with information sharing, when competition is weak, or competition is intense but demand uncertainty is high. The result is rather straightforward: under the stated conditions, two-part tariff reduces double marginalization and increases channel efficiency. Moreover, information sharing allows the manufactures to make more accurate, tailored decisions, which again increases channel efficiency. Since both factors increase efficiency (hence the size of the pie), each retailer may benefit, too (even if his share of the pie reduces).

I commend the authors’ effort to carry out a fairly complete analysis of the equilibrium outcomes. This exercise is certainly valuable, but the main result is not sufficiently innovative. So I do not find a compelling reason for publishing this paper.


Month 4: 263

    finish TYM (1 week), INV (1 week), and MRF (2 weeks);
    push MHS, TQ2, AO;
    maybe start DSR;
    finish Luenberger, optimization by vector space methods;
    finish keys to great writing;
    finish the willpower instinct;
    read economics rules;
    plan the party on 1.31;
    online blogging;
    attend econ seminars;
    go to univ library;
    try basketball pickup, or another community activity;   
    buy furniture, plants, and paintings;


[Beijing, China, 10/27/2014]

Month 3: 264

GC: Done with documents. It should be filed next month, and finalize in April.
networking: start blogging. Still need to connect to more people.
BAR: submitted to MS.
home decoration: setup internet and TV.

networking: online and offline;
start DSR;
finish BAR and TYM;
home decoration: minimalist style, buy furniture, plants, and paintings.


[Beijing, China, 7/22/2012]

Writing: paper review

The paper studies the procurement strategies for the A-systems. It concerns a firm producing a product of multiple components. The components’ procurement lead time are different but deterministic. The spot price for the key component fluctuates as a Brownian motion; other components have stable prices. The product demand is random with fixed selling price.

The firm seeks to maximize the expected profit by making proper quantity and procurement timing decisions. Buying earlier, it pays higher cost for holding inventory; delaying procurement, it must pay tardiness penalty for late delivery.

The paper considers two supply contracts. Under the strict contract, the firm must decide the quantity and timing at time 0. It trades off holding cost of early procurement and penalty of delaying. The quantity decision follows the newsvendor logic, while the timing is given by the optimal stopping problem. (In fact, the quantity part can be removed to make the logic cleaner.) Under the flexible contract, the firm can observe the price movement and hence buy at a lower price, thereby lowering the cost. Essentially it is an optimal stopping problem.

Despite the interesting setup, the paper falls short on both methodological and managerial ground. Its analysis hinges on the single random price assumption, which makes the characterization straightforward. The most interesting case is when the prices have the downward trend; but the paper does not make much headway here. That would be fine if the paper makes substantial managerial contribution. But here it fails, too. The two managerial points the paper makes are common sense.

In summary, the paper must go a step deeper.