Knowledge that Transforms

Formal agreements can be used to achieve coordination among channel members. These agreements work by exerting explicit control over the members who make the agreements. However, implicit understandings can be used as a partial substitute for more formal agreements. In this paper, we show that implicit understandings can develop as channel members learn about each other's behavior. We show that … This learning leads to the use of the implicit influence each channel member has over the other's behavior. The learning leading to an implicit understanding requires some form of experimentation or historical observation. This learning results in an oscillating retail price. When only one channel member learns the other's behavior, both channel members obtain greater profits than when neither member learns, and both channel members obtain less profits than when both members learn. However, the member who does not learn obtains more profits than the member who learns. We also show that … Implicit understandings result in greater channel profits than in their absence. Implicit understandings cannot fully substitute for an explicit contract. Implicit understandings result in a retail price which is higher than the price resulting from an explicit contract but lower than the price resulting in the absence of an implicit understanding. Implicit understandings develop as channel members learn each other's behavior. We demonstrate that the form of learning discussed in this paper is consistent with a somewhat general demand function. Finally, the paper provides some examples of both symmetrical learning, where both channel members learn at the same speed and asymmetrical learning where channel members learn at different speeds.

Motivated by an application in a public utility, the credit screening problem is re-examined from a decision theoretic viewpoint. The relationships between several alternative problem formulations are explored, and compared to the classical linear discriminant analysis (LDA) approach. Several mathematical programming based solution methods are proposed when the data are binary, and an efficient algorithm is developed for the case when the screening function must also have binary weights. Actual results of both the mathematical programming and LDA methods are presented and compared. The resulting mathematical programming rules are effective, robust, and flexible to administer. Practical advantages of the resulting “n out of N” type rules are discussed. These screening rules have been widely implemented by a major public utility and have resulted in substantial benefits to the utility and to the public.

This paper is concerned with queueing systems of several service stations in series in which each station may consist of multi-servers. An infinite number of customers always waits in front of the first station, and each customer passes through all of the stations in sequence. There is only a finite number of waiting positions between any two adjacent stations. The service time for a customer at any station is assumed to be a random variable, the distribution of which may depend on the station. In this mode of operation the servers at any station will at any time be busy, idle, or blocked. This blocking system is said to be C-reversible if the capacity remains invariant under reversal of the system. The reversed system is obtained by reversing the original stations' order, that is, every customer in the reversed system passes through the original stations in the reverse order. It has already been proved that C-reversibility holds for any blocking system in which each station consists of either a single server of nondeterministic service times or multi-servers of deterministic service times, and that the blocking system has a stronger property than C-reversibility. In this paper we show that two-station blocking systems with multi-server stations of nondeterministic service times are C-reversible, but this property can no longer be extended to three or more station blocking systems with multi-server stations of nondeterministic service times. We also show for the case of multi-server stations of nondeterministic service times that the stronger property which involves invariance of distribution does not hold even for two-station blocking systems.

This paper deals with the classical dynamic lot size problem without backlogging and capacity limitation. We derive worst case performance bounds for a class of lot sizing heuristics. When the considered methods are applied a decision whether to have a set-up or not in a certain period is taken without regarding the future demand. It is shown that 2 is a lower bound for the worst case performance ratio for such heuristics. The results illustrate circumstances under which the approximate techniques fail.

A persistent conceptual problem in the theory of risk accounting and risk analysis methodology is that of allocating or attributing a risk among the joint causes or “factors” producing it. When multiple factors interact, the especially difficult problem of “risk externalities” arises. Drawing on related work in the mathematical theory of games that seeks solutions to similar philosophical and conceptual problems, this paper proposes a method for solving the risk attribution problem. The proposed solution is justified on the grounds that it is the unique risk attribution function satisfying three reasonable principles, or “axioms,” of risk accounting. A mathematical framework for formulating risk attribution problems, and several possible applications, are also discussed.

In constrast to “ordinary” sensitivity analysis in linear programming, the tolerance approach considers simultaneous and independent changes in the objective function coefficients and in the right-hand side terms. This approach yields a maximum tolerance percentage such that, as long as selected coefficients or terms are accurate to within that percentage of their estimated values, the same basis is optimal. In particular, if the objective function coefficients are accurate to within the maximum tolerance percentage of their specified values, then the same solution is optimal.

This paper develops optimal order quantities for firms that are offered a one-time opportunity to delay payment for an order of a commodity. Such delayed payments result in a reduction of the effective purchase cost, which is a function of the return available on alternative investments, the number of units of the commodity ordered, and the length of the extended period. Optimal order quantities are developed for extended payment privileges that occur at a reorder point of between reorder points. Six suppliers' extended payment scenarios are evaluated. A simulation analysis is conducted to determine the sensitivity of derived models to changes in the various input parameters. The simulation with realistic parameter values reveals that the additional discounted order quantity is insensitive to large changes in the ordering cost and unit price; sensitive to changes in the carrying cost and return rate of funds, but without significantly affecting the total cost; and extremely sensitive to the annual demand. Simple analytic decision rules are provided to guide firms that are offered such extended payment privileges.

This paper attempts to relate the conditions that require different planning approaches. A theoretical planning framework is presented that considers the confidence of causal linkages coupled with the extent of environmental change. Prior planning research is synthesized to speculate on the appropriate leadership and decision-making styles for single-businesses, nondiversified firms, or divisions of diversified firms. Examples of computational, consensual, contingency, and conceptual planning systems are also provided.

In the pristine model of general economic equilibrium producers and consumers are assumed to take prices for their inputs and outputs as given. A market equilibrium solution is obtained when the prices of all products lead to equal amounts of supply and demand for each. The mathematical properties of this model provide a rich and powerful unifying foundation for much of modern microeconomic theory. However, in many practical applications it is difficult or impossible to develop the data, and formulate and solve the equations required to implement the model of general economic equilibrium in its most general form. In practice, generality of formulation is often sacrificed for ease of computation and interpretation. These tradeoffs allow the latest breakthroughs in optimization algorithms and computer technology to be applied in the analysis of important societal problems. A potential drawback associated with this otherwise desirable trend is that the analysis could become infatuated with the use of particular algorithms, and lose sight of the restrictive simplifying assumptions they imply. The present paper includes a comparison of the simplifying assumptions required in four of the most popular types of energy-economic models with respect to the model of general economic equilibrium. This comparison helps sharpen our appreciation for the tradeoffs between generalization of formulation and ease of computation and interpretation that are available. The concept of general economic equilibrium is employed to provide a common framework for four ostensibly different approaches to large-scale modeling: (1) variable-coefficient input-output theory, (2) process network methodology, (3) linear programming and (4) general nonlinear optimization. The similarities and the differences of the four approaches are isolated within this framework. This comparison makes both the absolute and the relative strengths and weaknesses of the models more transparent.

We analyze a duopoly through a differential game, in which the players set prices as functions of time. Under reasonable assumptions, we find that prices first decline, then increase. The market share of the biggest firm grows initially but decreases later. It is demonstrated that a firm may growth maximize early, but never late, in the product life cycle. Finally we show that only the low price firm will pay for informative advertising, whereas both firms will pay for persuasive advertising, though less if their market shares are very different.