Knowledge that Transforms

E-commerce platforms have an informational advantage over their third-party sellers, leading to the common belief that a platform's market entry would harm sellers with similar products. However, unlike traditional retail competition, the platform and its sellers have aligned incentives: the platform's commission depends on the seller's revenue, and sellers rely on the platform to strengthen their online presence. Hence, the platform has no incentive to enter the market to harm the seller's revenue severely. This paper introduces a duopoly model where the seller is the "incumbent" and the platform is the "potential entrant". Our model captures two salient features: (a) the "reputation effect" that enables the platform to obtain a higher consumer valuation than the seller, and (b) the "spillover effect" that expands the market size when an additional entity (e.g., the platform) enters the market. Our equilibrium analysis debunks the prevailing belief about platform's entry, showing that platform's entry can enable both the platform and the seller to obtain a higher profit when the unit cost is sufficiently low and the spillover effect is sufficiently high. For robustness checks, we consider three different extensions: an alternative duopoly model with reversed roles where the platform is the incumbent and the seller is the potential entrant, a scenario with an endogenously determined spillover effect, and a simultaneous market entry/exit decision-making process. We find a consistent result across all three extensions that both seller and platform entries can mutually benefit under similar market conditions, fostering a symbiotic relationship.

Relevance : In this article, we focus on the decision of a multinational firm (MNF) on production strategies under the influence of national culture. The national culture of a country can result in a high preference for openness or self-reliance, and such a preference changes over time. The related government policies have a strong impact on the MNF’s decision whether to produce overseas and sell products in the domestic market or produce locally for domestic selling. Theory and methodology : We build a game-theoretical model comprising an MNF and a local retailer to investigate the MNF’s preference for production strategies with the consideration of the influence of national culture. Practice of the research : We find that when the factory establishment variable cost is low and the fixed cost is in a moderate range, the MNF’s preference over production strategies switches twice from local production to overseas production and then back to local production, as the channel substitutability increases. Interestingly, when the factory establishment variable cost is low and the fixed cost is high, the MNF’s preference is heavily dependent upon the tax disparity, exhibiting a threshold policy based on the channel substitutability. Our findings provide important insights for the MNFs into utilizing the national-culture-oriented tax policies and channel substitutability when establishing factories in foreign countries. We also reveal that the preferential local manufacturing policies originated from a high cultural preference for self-reliance may not attract more MNFs, which negatively impacts the policy effectiveness.

Manufacturing cost plays a crucial role in suppliers’ encroachment decisions. A high manufacturing cost impedes suppliers’ capacity to encroach. However, cost learning may reduce this cost sufficiently enough to make encroachment profitable for the supplier at a later point in time. Accordingly, he may have an incentive to boost production so as to promote cost learning. Thus, he may drop the wholesale price to induce the retailer to buy more. On the one hand, cost learning may enable encroachment, which may be detrimental to the retailer. On the other hand, cost learning results in a lower manufacturing cost which may translate into a lower future wholesale price, benefiting the retailer. Therefore, the retailer faces a dilemma: should she increase her order quantity to advance cost learning or not? As the retailer may order fewer units in the initial period to limit future direct channel sales, the supplier faces a challenge: should he, instead of dropping his initial wholesale price, raise it to signal his intention of not encroaching so as to induce the retailer to sell a higher quantity in the first period? We model the supplier–retailer interaction as a two-period Stackelberg game to address the retailer’s dilemma and to identify the optimal supplier response. We uncover a new outcome, which arises in the presence of cost learning, where the supplier encroaches but decides not to sell anything through the direct channel. In addition, we find that supplier encroachment may reduce or eliminate the retailer’s incentive to advance cost learning. This results in lower sales by the retailer, which impedes cost learning, leading to a higher future manufacturing cost (compared to the no encroachment setting). As a result, encroachment, which is typically viewed as advantageous for the supplier, may become detrimental to him. Surprisingly, the supplier continues to encroach and sell directly unless he can credibly assure the retailer that he will not encroach in the future.

With the rise of the digital economy, many firms are enhancing product line flexibility (i.e., the ability to adjust product line length or depth) to better manage demand uncertainties brought about by disruptive technologies. Concurrently, the booming digital economy has widened the information gap in supply chains. Retailers/platforms can now gather more detailed data to predict demand, but such data remains unavailable to manufacturers. This article studies how a manufacturer’s product line flexibility influences a retailer’s incentive to voluntarily share private demand information. We show that upstream product line flexibility encourages a retailer to voluntarily share information when product substitutability is low and the product line extension fee is moderate. This insight challenges the conventional belief that retailers should keep demand information private to maintain an advantage over manufacturers. Our work is the first to suggest that upstream product line flexibility can significantly motivate retailer information sharing. Additionally, we show that, although a social planner might prefer to withhold demand information from the manufacturer in the absence of product line flexibility, sharing this information becomes preferable when the manufacturer can adjust the product line length. The retailer’s decision on information sharing can align with the social planner’s in such scenarios. Furthermore, we demonstrate that, given upstream product line flexibility, except when product substitutability is not sufficiently high and the product line extension fee is moderate, the retailer’s information sharing decision is unaffected by whether the manufacturer determines the product line design before or after demand is realized and shared accordingly.

In retail operations, free sample trial (FST) and product return with money-back guarantee (MBG) both serve as important strategies to reduce consumers’ worries and valuation uncertainty. This paper is the first study which analytically examines when and whether an online retailer should provide both strategies simultaneously, and when one strategy outperforms the other. We consider an online retailer selling to consumers who are uncertain about the product values when making purchasing decisions. The retailer decides whether to offer MBG or FST. We develop analytical models to examine four strategies: strategy NN (both FST and MBG are not provided), strategy NS (FST is provided and MBG is not offered), strategy MN (FST is not provided and MBG is provided), and strategy MS (both FST and MBG are offered). Comparing among these four strategies, we find that when only FST is offered, the retailer surprisingly should decrease the price if the product cost is low. If the retailer only provides MBG, he will charge a higher price compared with the situation when MBG is not provided. When the size of free sample is very small, strategy NS (MS) is the optimal strategy if the product's cost is low (high). When the size of free sample is large, strategy MN is the optimal strategy. Then, we extend our model to consider three situations, namely: (a) the retailer offers coupons to consumers to experience the free sample, (b) consumer returns incur a cost, and (c) the size of free sample is endogenous. We find the main conclusion remains robust. Our findings may help explain some real-world practices, such as why some retailers (e.g., Amazon and Walmart) provide consumers with low volume toners to decrease the free sample cost; skincare product retailers such as Lancôme, Estee Lauder, and Guerlain implement both MBG and FST. We also interestingly show that a bigger size of free sample may not necessarily benefit consumers.

Several major on-line platforms operate two channels: An agency channel in which suppliers retain control over prices and quantities and pay a portion of sales revenue to the platform, and a reselling channel in which the platform purchases goods from the supplier and resells them to consumers. These two channels run in parallel and many suppliers interact with only one of them. Although it is quite easy for a supplier to sell through a platform’s agency channel, they must typically be invited to participate in the reselling channel. We develop a model of a powerful platform that can offer a supplier a two-part contract to induce it to participate in its reselling channel instead of its agency channel. When the supplier sells through the platform’s agency channel, we find that if the competition among the traditional resellers is at least moderate and the on-line platform is a close enough substitute for traditional resale channel, then the equilibrium quantities sold through the on-line and traditional channels both exceed the first best quantities. This would not occur if the supplier sold through either the on-line or the traditional channel in isolation. Nor would it occur if the supplier sold through the platform’s reselling channel. As a consequence, we find that when competition among traditional resellers is at least moderate, and both the commission rate and the substitutability between the on-line platform and the traditional resale channel are sufficiently high, there is a Pareto improving reselling contract between the supplier and the platform.

The living wage (LW) movement is part of the fight against forced labor: It aims to ensure that workers receive an income that can cover their daily subsistence needs. Our study expands the current understanding of LW pay by shifting from the traditional labor-capital view to an operations and supply chain management perspective. We use a game theoretical approach to explore the different responses of two competing supply chains to LW accreditation. We find that a moderate LW standard allows for Pareto optimality where key stakeholders (i.e., manufacturers, retailers, consumers, and workers) have a collective interest in promoting the LW movement. From a multistakeholder lens, the LW movement is only sustainable if the LW standard is neither too aggressive nor too conservative. We further demonstrate the following points. (1) Not all types of uncertainties are harmful to supply chains with LW pay. Yield uncertainty slows down the progress of the LW movement, whereas demand uncertainty encourages the voluntary adoption of LW pay among all stakeholders. (2) Supply chain coordination may slow the adoption of voluntary LW pay, which implies that the classic coordination paradigm is not a panacea in alleviating the plight of underpaid workers. (3) From the perspective of competition intensity, greater monopsony power hinders the progress of the LW movement, and we provide evidence for the positive effects of a competitive environment on incentivizing voluntary LW pay.

Once autonomous vehicles (AVs) are deployed for ride-hailing platforms, human drivers will compete with AVs until AV costs decrease enough to eliminate human drivers entirely. We examine a ride-hailing platform’s strategy to recruit human drivers while operating a private AV fleet. Using a game-theoretic model, we analyze how the platform sets the human-driver wage and the size of its AV fleet. We show that setting a higher wage can surprisingly lead to less human-driver participation. Moreover, we show that having the option to augment its AV fleet after observing human participation levels can, counterintuitively, hurt the platform’s bottom line. Our findings emphasize the need for ride-hailing platforms to carefully navigate the complex interactions between their roles as supply providers (of AV-served rides) and supply seekers (of human drivers), as failure to do so can be costly.

Due to the U.S.-China trade war, multinational firms may develop new contract manufacturers outside China to hedge against high tariffs on Chinese exports to the U.S. market. However, tariffs exhibit high uncertainty in recent years and developing a contract manufacturer incurs costs; hence, it is challenging to decide whether to develop a new contract manufacturer. We study two competing firms’ contract manufacturer development decisions in a sequential game. First, we find that multinational firms prefer to develop new contract manufacturers when tariffs are expected to rise moderately rather than sharply. This is because the value of developing a new contract manufacturer for a multinational firm is the largest when the new contract manufacturer and the existing one compete most intensely, which happens for similar tariff-inclusive costs. This implies, when taking into account competition, an overly high tariff on Chinese exports to the United States does not necessarily serve the purpose of switching suppliers from China to other regions. Furthermore, higher tariff uncertainty can decrease development value and hence the incentive to develop a contract manufacturer. When there is an upward tariff shock that induces the equilibrium where both multinational firms develop a contract manufacturer, both firms must be worse off; only when it induces the asymmetric development equilibrium is it possible for the multinational firm developing a contract manufacturer to be better off, even with tariff increase and development cost. Second, the impact of development cost on multinational firms’ incentives to develop new contract manufacturers is nonmonotone. As the development cost increases, the equilibrium can switch from both not developing new contract manufacturers to one developing a new contract manufacturer. Third, when the future tariff is expected to be high, multinational firms should diversify their development strategies in environments with fierce competition. Furthermore, increasing competition is not necessarily harmful for multinational firms. We also extend the analysis to consider asymmetric development costs and unobservable wholesale prices, and find the major insights are robust.

In 2015, the United Nations (UN) countries signed up to achieve 17 sustainable development goals (SDGs) for people, planet, prosperity, peace, and partnership by 2030. However, the trend of progress toward achieving these goals indicates that none of the 17 goals may be achieved by 2030 globally. We first provide La foundation for operations management (OM) researchers to help shape the interventions for countries and companies to help achieve the SDGs by (1) identifying the synergies among the SDGs so that interventions can impact multiple SDGs positively and (2) linking some of the extant OM research with the synergies among the various SDGs. This way, researchers can understand the complexity of the challenges ahead and build on the OM literature to influence the interventions of governments and organizations to maximize the attainment of the SDGs. We also list some research opportunities to help OM researchers develop research agendas.