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The importance of material flow management for a profit-maximizing firm has been well articulated in the supply chain literature. We demonstrate in our analytical model that a firm must also actively manage information flows within the supply chain, which translates to controlling what it knows, as well as what its competitors and suppliers know. In our model of horizontal competition between an informed and an uninformed firm with a common upstream supplier, material and information flows intersect through leakage of demand (order) information to unintended recipients. As a result, the informed firm's drive to control information flows within the supply chain can trigger operational losses through material flow distortion. These losses can be so severe that the firm may prefer not to acquire information even when it is costless to do so. Our results underscore the importance of strategic information management—actively managing the supply chain's information flows, and making trade-offs with material flows where appropriate, to maximize profits .

We develop a model of oligopolistic firms that produce partially differentiated products and generate pollution as a byproduct. We analyze and compare two types of pollution regulation: Cap-and-Trade and Taxes. Firms can respond to regulation by any combination of pollution abatement, output reduction, emissions trading (under Cap-and-Trade), or payment of pollution taxes (under Taxes). We prove that well-chosen regulation can, besides reducing pollution, actually improve firms’ profits relative to laissez-faire (unregulated markets), and simultaneously improve consumer surplus and welfare. Thus, regulation Pareto-dominates laissez-faire under a wide range of plausible conditions. These results are driven by an unintended consequence of pollution regulation: Competing firms can use the regulation to tacitly (and credibly) collude to reduce production and improve their profits. We show that the degree of competition plays a critical role in determining the economic consequences of pollution regulation. Our results suggest that the regulator’s primary consideration should be the impact of regulation on consumers rather than producers. This paper was accepted by Vishal Gaur, operations management.

Our dynamic model of information technology (IT) outsourcing integrates incomplete contracts, moral hazard, and adverse selection under both perfect and, more realistically, bounded rationality. In addition to the classical profit-maximizing firm unconstrained by ethics, we model an ethically constrained (but otherwise profit-maximizing) firm that honors its contractual obligations irrespective of legal restraints. We prove that under bounded rationality, the ethically constrained firm can obtain strictly greater profits than the unconstrained profit-maximizing firm, even when (i) the unconstrained firm has access to a superset of the ethical firm’s strategies and (ii) the ethical firm is unable to reveal its ethical commitment to its contracting partner anytime during the contractual relationship. Thus, a commitment to ethics, while of course being morally desirable, can lead to higher profits than the unbridled profit-maximization of classical economics. We also prove that ethics is foundational to both intellectual property (IP) sharing and reputation effects , two well-known facilitators of IT outsourcing. In fact, the mere possibility of ethical firms (a) forces across-the-board IP sharing even if it lowers profits and (b) induces even an ethically unconstrained firm to invest in developing a reputation for ethics. Our model provides a novel explanation, rooted in ethics, for why IT outsourcing is booming despite the formidable impediments of incomplete contracts, moral hazard, and adverse selection. This paper was accepted by Anandhi Bharadwaj, information systems.

Our dynamic model of information technology (IT) outsourcing integrates incomplete contracts, moral hazard, and adverse selection under both perfect and, more realistically, bounded rationality. In addition to the classical profit-maximizing firm unconstrained by ethics, we model an ethically constrained (but otherwise profit-maximizing) firm that honors its contractual obligations irrespective of legal restraints. We prove that under bounded rationality, the ethically constrained firm can obtain strictly greater profits than the unconstrained profit-maximizing firm, even when (i) the unconstrained firm has access to a superset of the ethical firm's strategies and (ii) the ethical firm is unable to reveal its ethical commitment to its contracting partner anytime during the contractual relationship. Thus, a commitment to ethics, while of course being morally desirable, can lead to higher profits than the unbridled profit-maximization of classical economics. We also prove that ethics is foundational to both intellectual property (IP) sharing and reputation effects, two well-known facilitators of IT outsourcing. In fact, the mere possibility of ethical firms (a) forces across-the-board IP sharing even if it lowers profits and (b) induces even an ethically unconstrained firm to invest in developing a reputation for ethics. Our model provides a novel explanation, rooted in ethics, for why IT outsourcing is booming despite the formidable impediments of incomplete contracts, moral hazard, and adverse selection.

In many services, the quality or value provided by the service increases with the time the service provider spends with the customer. However, longer service times also result in longer waits for customers. We term such services, in which the interaction between quality and speed is critical, as customer-intensive services . In a queueing framework, we parameterize the degree of customer intensity of the service. The service speed chosen by the service provider affects the quality of the service through its customer intensity. Customers queue for the service based on service quality, delay costs, and price. We study how a service provider facing such customers makes the optimal \"quality-speed trade-off.\" Our results demonstrate that the customer intensity of the service is a critical driver of equilibrium price, service speed, demand, congestion in queues, and service provider revenues. Customer intensity leads to outcomes very different from those of traditional models of service rate competition. For instance, as the number of competing servers increases, the price increases, and the servers become slower. This paper was accepted by Sampath Rajagopalan, operations and supply chain management.

We develop a model of oligopolistic firms that produce partially differentiated products and generate pollution as a byproduct. We analyze and compare two types of pollution regulation: Cap-and-Trade and Taxes. Firms can respond to regulation by any combination of pollution abatement, output reduction, emissions trading (under Cap-and-Trade), or payment of pollution taxes (under Taxes). We prove that well-chosen regulation can, besides reducing pollution, actually improve firms' profits relative to laissez-faire (unregulated markets), and simultaneously improve consumer surplus and welfare. Thus, regulation Pareto-dominates laissez-faire under a wide range of plausible conditions. These results are driven by an unintended consequence of pollution regulation: Competing firms can use the regulation to tacitly (and credibly) collude to reduce production and improve their profits. We show that the degree of competition plays a critical role in determining the economic consequences of pollution regulation. Our results suggest that the regulator's primary consideration should be the impact of regulation on consumers rather than producers.

The value of delayed differentiation (also known as postponement) for a monopolist has been extensively studied in the operations literature. We analyze the case of (imperfectly) competitive markets with demand uncertainty, wherein the choice of supply chain configuration (i.e., early or delayed differentiation) is endogenous to the competing firms. We characterize firms’ choices in equilibrium and analyze the effects of these choices on quantities sold, profits, consumer surplus, and welfare. We demonstrate that purely strategic considerations not previously identified in the literature play a pivotal role in determining the value of delayed differentiation. In the face of either entry threats or competition, these strategic effects can significantly diminish the value of delayed differentiation. In fact, under plausible conditions, these effects dominate the traditional risk-pooling benefits associated with delayed differentiation, in which case early differentiation is the dominant strategy for firms, even under cost parity with delayed differentiation. We extend the main model to study the effects of alternate market structures, asymmetric markets, and inventory holdback. Our results—in particular that for a broad range of parameter values, early differentiation is a dominant strategy even under cost parity with delayed differentiation—are robust to these relaxations.

Web-based group-buying mechanisms are being widely used for both business-to-business (B2B) and business-to-consumer (B2C) transactions. We survey currently operational online group-buying markets, and then study this phenomenon using analytical models. We build on the literatures in information economics and operations management in our analytical model of a monopolist offering Web-based group-buying under different kinds of demand uncertainty. We derive the monopolist's optimal group-buying schedule under varying conditions of heterogeneity in the demand regimes, and compare its profits with those that obtain under the more conventional posted-price mechanism. We further study the impact of production postponement by endogenizing the timing of the pricing and production decisions in a two-stage game between the monopolist and buyers. Our results have implications for firms' choice of price-discovery mechanisms in e-markets, and for the scheduling of production and pricing decisions in the presence (and absence) of scale economies of production.

In many services, the quality or value provided by the service increases with the time the service provider spends with the customer. However, longer service times also result in longer waits for customers. We term such services, in which the interaction between quality and speed is critical, as customer-intensive services. In a queueing framework, we parameterize the degree of customer intensity of the service. The service speed chosen by the service provider affects the quality of the service through its customer intensity. Customers queue for the service based on service quality, delay costs, and price. We study how a service provider facing such customers makes the optimal \"quality-speed trade-off.\" Our results demonstrate that the customer intensity of the service is a critical driver of equilibrium price, service speed, demand, congestion in queues, and service provider revenues. Customer intensity leads to outcomes very different from those of traditional models of service rate competition. For instance, as the number of competing servers increases, the price increases, and the servers become slower.

We model the effects of alternative coordination structures on the performance of a firm that faces uncertain demand in multiple horizontal markets. The firm's coordination structure is jointly determined by its decision-rights structure and by its information structure. We compare the performance of decentralized, centralized and distributed structures and study factors that affect the value of coordination. The results quantify and illustrate the value of co-locating decision rights with specific knowledge.