Management Science 2013
Management Insights
Abstract
Victor Manuel Bennett, Lamar Pierce, Jason A. Snyder, Michael W. Toffel When is a good thing a bad thing? Competitors who fight for customers may cut corners in order to get their business. Competition among firms yields many benefits but can also encourage firms to engage in corrupt or unethical activities. The authors suggest that competition can lead organizations to provide services that customers demand but that violate government regulations, especially when price competition is restricted. Using 28 million vehicle emissions tests from more than 11,000 facilities, the authors show that increased competition is associated with greater inspection leniency, a service quality attribute that customers value but that is illegal and socially costly. Firms with more competitors pass customer vehicles at higher rates and are more likely to lose customers whom they fail, suggesting that competition intensifies pressure on facilities to provide illegal leniency. The authors also show that, at least in markets in which pricing is restricted, firms use corrupt and unethical practices as an entry strategy. The insight for management: Highly competitive environments may create perverse incentives along legal and ethical lines. Yina Lu, Andrés Musalem, Marcelo Olivares, Ariel Schilkrut How does the size of queues affect sales? The authors conduct an empirical study to analyze how waiting in line in the context of a retail store affects customers' purchasing behavior. The authors collected data at a deli counter via video recognition technology over a period of nine months and cross-referenced it with with point-of-sales data. They find that waiting in line has an escalating effect on purchases; longer lines are dramatically more discouraging than shorter ones. Interestingly, customers appear to focus mostly on the length of the queue, without adjusting enough for the speed at which the line moves—despite the fact that a single queue generally provides better service. An implication of this finding is that pooling multiple queues into a single queue may increase the length of the queue observed by customers and thereby lead to lower revenues, even though service is better. The authors also find that bargain-hunting customers are more willing to wait in lines; thus, the service strategy also has price implications. The insight for management: Those developing service strategies in services with queues must consider consumer psychology as well as operational efficiency. Gordon Phillips, Giorgo Sertsios The authors analyze the interaction of firm product quality and pricing decisions with financial distress and bankruptcy in the airline industry. They consider an airline's choices of quality and price as dynamic decisions that trade off current cash flows for future revenue. They examine how mishandled baggage, on-time performance, and pricing are related to financial distress and bankruptcy, controlling for the endogeneity of financial distress and bankruptcy. They find that an airline's quality decisions are differentially affected by financial distress and bankruptcy. Product quality decreases when airlines are in financial distress, consistent with financial distress reducing a firm's incentive to invest in quality. In contrast, during bankruptcy product quality increases relative to financial distress. In addition, the authors find that firms price more aggressively when in financial distress consistent with firms' trying to increase short-term market share and revenues. The insight for management: A firm's financial conditions may directly affect the quality and pricing of its services. Yingda Lu, Kinshuk Jerath, Param Vir Singh Online ratings, rankings, and reviews are prevalent on many retail sites. Do different opinions carry more or less weight with prospective buyers? The authors study the drivers of the emergence of “opinion leaders” in a networked community where users establish links to others, indicating their “trust” for the link receiver's opinion. This leads to the formation of a network, with some individuals becoming the opinion leaders. The authors find that, in the Epinions network, both the widely studied “preferential attachment” effect based on the existing number of links to an opinion giver and the number and quality of reviews written are significant drivers of new incoming trust links to a reviewer. However, over time the influence of the opinion leaders fades. The insight for management: The design of online review communities should consider the important influence of quality and quantity of opinions provided by opinion leaders. Michael Becker-Peth, Elena Katok, Ulrich W. Thonemann In the face of uncertainty, are supply chain managers rational? One of the main assumptions in research on designing supply contracts is that decision makers act in a way that maximizes their expected profit. The authors conduct a number of laboratory experiments that demonstrate that this assumption does not hold. Specifically, faced with uncertain demand, decision makers place orders that systematically deviate from the expected profit-maximizing levels. The insight for management: One must account for tastes; a behavioral model better explains contracting outcomes than contracts designed using the standard rational optimization model. Margaret Aksoy-Pierson, Gad Allon, Awi Federgruen How do competitive markets perform when customers can be segmented? The authors estimate the performance of a market that is partitioned into a finite set of market segments. They characterize the equilibrium behavior of this class of market models. The insight for management: Modeling approaches can lead to a better understanding of the performance in equilibrium conditions of segmented markets. Burhaneddin Sandıkçı, Lisa M. Maillart, Andrew J. Schaefer, Mark S. Roberts What is the price of patient privacy in the case of a liver donation waiting list? In the United States, end-stage liver disease patients join a waiting list and then make accept/reject decisions for transplantation as deceased-donor organs are offered to them over time. These decisions are largely influenced by the patient's prospect for future offers, which can be ascertained most accurately by knowing the entire composition of the waiting list. Under the current transplantation system, however, the United Network for Organ Sharing (UNOS), in an effort to strike a balance between privacy and transparency, publishes only an aggregated version of the waiting list. It is not clear whether the published information is good enough (compared with perfect information) to help patients make optimal decisions that maximize their individual life expectancies. The authors compare, in a clinically driven numerical study, the results with perfect and imperfect information. They assess the quality of the published imperfect information as measured by a patient's so-called price of privacy, measured in the opportunity loss in expected life days due to a lack of perfect waiting list information. The insight for management: The currently published partial information is nearly sufficient to eliminate this loss, resulting in a negligible price of privacy and supporting current UNOS practice. Dennis Vrecko, Thomas Langer Even though buy-and-hold (B&H) investment strategies can take the risk tolerance of an investor into account by specifying a suitable stock proportion, the outcome profiles of B&H strategies are restricted to a specific class of return distributions. For investors with particular risk preferences, further customization should thus provide additional value. The authors investigate the strength of preference for such customized distributions and draw conclusions about the demand for personalized investment products. In two experimental studies, 256 participants could adjust the return distribution of an initially chosen B&H investment by using an interactive software program. The authors also surveyed real investors at an investors fair to compare their preferences with those of the main pool of student subjects. The insight for management: Most investors make extensive use of the customization option, and many are willing to pay a substantial fee for this additional flexibility. Lin Liu, Anthony Dukes How many firms and how many products should be considered in evaluating potential suppliers? The authors evaluate a situation in which firms carry multiple products and consumers incur evaluation costs not only across firms but also within firms. Consumers judiciously decide the number of firms to include in their consideration sets as well as how many products from those firms. This decision depends on the relative trade-offs of evaluating an additional product and whether it is from a firm already included in the consideration set or from an entirely new firm. The composition of consumers' consideration set affects how firms compete in prices and in the number of products to offer. The authors find that firm differentiation can reduce firms' product lines and that within-firm evaluation costs have either a positive or a negative effect on firms' prices. The insight for management: Within-firm evaluation costs and across-firm evaluation costs are different constructs; the number of products that firms offer in equilibrium can exceed the socially optimal level if within-firm evaluation costs are significant. Turan G. Bali, Stephen J. Brown, K. Ozgur Demirtas
- DOI
- 10.1287/mnsc.2013.1791
- Sources
- openalex