Multiregional Oligopoly with Capacity Constraints

2020 ◽  
Author(s):  
Humoud Alsabah ◽  
Benjamin Bernard ◽  
Agostino Capponi ◽  
Garud Iyengar ◽  
Jay Sethuraman
Keyword(s):  
Revenue Management ◽  
Free Trade ◽  
Consumer Surplus ◽  
Capacity Constraints ◽  
Unintended Consequences ◽  
Transportation Costs ◽  
Unique Equilibrium ◽  
Equilibrium Allocation ◽  
Multiple Regions ◽  
Capacity Constrained

We develop a model of Cournot competition between capacity-constrained firms that sell a single good to multiple regions. We provide a novel characterization for the unique equilibrium allocation of the good across regions and design an algorithm to compute it. We show that a reduction in transportation costs by a firm may negatively impact the profit of all firms and reduce aggregate consumer surplus if such a firm is capacity constrained. Our results imply that policies promoting free trade may have unintended consequences and reduce aggregate welfare in capacity-constrained industries. This paper was accepted by David Simchi-Levi, revenue management and market analytics.

scholarly journals A Welfare Assessment of Revenue Management Systems

2020 ◽  
Vol 19 (1) ◽  
pp. 1-41
Author(s):  
Nicolas Dupuis ◽  
Marc Ivaldi ◽  
Jerome Pouyet
Keyword(s):  
Theoretical Model ◽  
Revenue Management ◽  
Consumer Preferences ◽  
Consumer Surplus ◽  
Capacity Constraints ◽  
Management Systems ◽  
Optimal Pricing ◽  
Pricing Strategies ◽  
Welfare Impact ◽  
Welfare Assessment

AbstractWe study the welfare impact of revenue management, a practice which is widely spread in the transport industry, but whose impact on consumer surplus remains unclear. We develop a theoretical model of revenue management allowing for heterogeneity in product characteristics, capacity constraints, consumer preferences, and probabilities of arrival. We also introduce dynamic competition between revenue managers. We solve this model computationally and recover the optimal pricing strategies. We find that revenue management is generally welfare enhancing as it raises the number of sales.

scholarly journals The Effects of AfCFTA on Food Security Sustainability: An Analysis of the Cereals Trade in the SADC Region

2020 ◽  
Vol 12 (4) ◽  
pp. 1419 ◽  
Author(s):  
Michael Takudzwa Pasara ◽  
Nolutho Diko
Keyword(s):  
Food Security ◽  
Free Trade ◽  
Free Trade Agreement ◽  
Democratic Republic Of Congo ◽  
Consumer Surplus ◽  
Trade Agreement ◽  
Trade Diversion ◽  
African Countries ◽  
Multiplier Effects ◽  
Trade Perspective

The signing of the African Continental Free Trade Agreement (AfCFTA) has stimulated a lot of trade potential in Africa that could see the continent significantly improving its intra-trade levels, thereby boosting the economic welfare of Africans. In light of food security sustainability in the Southern African Development Community (SADC) region, this paper employed the World Integrated Trade Solution, Software for Market Analysis and Restrictions on Trade (WITS-SMART) simulation model to assess the potential effects of the AfCFTA on trade in cereals. Cereals have been regarded as the most critical component of food security. The model indicated trading partners for each of the 15 SADC countries, their level of trade creation, trade diversion, consumer surplus, welfare and revenue effects of any regional trade agreement. The results indicated that the AfCFTA will only lead to positive outcomes in four (Angola, the Democratic Republic of Congo, Madagascar and Namibia) of the fifteen SADC countries, with the rest remaining unchanged. In general, previously closed economies, that is, economies which were not part of a free trade agreement (FTA) or a deeper arrangement will stand to gain more than open economies because they are already opened up at the free trade level, which is equivalent to the AfCFTA. Thus, as far as cereals and food security is concerned, the AfCFTA will add minimal value. However, the overall value gains are likely to be greater when all food categories are included in the simulations. In general, the study recommends that African countries should deepen their integration levels to perhaps common markets where production factors, that is, labour and capital, become mobile. This will have multiplier effects in improving continental food security sustainability from a trade perspective.

scholarly journals Transparency of Behavior-Based Pricing

2019 ◽  
Vol 57 (1) ◽  
pp. 78-99 ◽  
Author(s):  
Xi Li ◽  
Krista J. Li ◽  
Xin (Shane) Wang
Keyword(s):  
Social Welfare ◽  
Consumer Surplus ◽  
Unintended Consequences ◽  
History Data ◽  
Consumer Data ◽  
Behavior Based ◽  
The Cost ◽  
Firm Profit ◽  
Commitment Device

Behavior-based pricing (BBP) refers to the practice in which firms collect consumers’ purchase history data, recognize repeat and new consumers from the data, and offer them different prices. This is a prevalent practice for firms and a worldwide concern for consumers. Extant research has examined BBP under the assumption that consumers observe firms’ practice of BBP. However, consumers do not know that specific firms are doing this and are often unaware of how firms collect and use their data. In this article, the authors examine (1) how firms make BBP decisions when consumers do not observe whether firms perform BBP and (2) how the transparency of firms’ BBP practice affects firms and consumers. They find that when consumers do not observe firms’ practice of BBP and the cost of implementing BBP is low, a firm indeed practices BBP, even though BBP is a dominated strategy when consumers observe it. When the cost is moderate, the firm does not use BBP; however, it must distort its first-period price downward to signal and convince consumers of its choice. A high cost of implementing BBP serves as a commitment device that the firm will forfeit BBP, thereby improving firm profit. By comparing regimes in which consumers do and do not observe a firm’s practice of BBP, the authors find that transparency of BBP increases firm profit but decreases consumer surplus and social welfare. Therefore, requiring firms to disclose collection and usage of consumer data could hurt consumers and lead to unintended consequences.

Research on Integrated Transportation of the Vehicle Logistics

2014 ◽  
Vol 945-949 ◽  
pp. 3287-3290
Author(s):  
Wen Li Tian ◽  
Cheng Xuan Cao
Keyword(s):  
Programming Model ◽  
Capacity Constraints ◽  
Time Constraint ◽  
Transportation Costs ◽  
Transportation Mode ◽  
Logistics Industry ◽  
Transport Mode ◽  
Searching Method ◽  
Inappropriate Choice ◽  
Future Reference

This paper focuses on the high transportation costs problem of the finished vehicle existing in the current vehicle logistics industry, which results from the inappropriate choice of the transport mode. Firstly, we establish a 0-1 programming model to select the integrated transportation mode quantitatively; Secondly, we solve the model by searching method which based on time constraint and capacity constraints; Finally, a case about the selection and optimization of the finished vehicles’ transportation mode in Anji Automotive Logistics Co.,Ltd are introduced to verify the model. The case results indicate that in the premise of meeting the requirement of time, the integrated transportation can greatly reduce the total transportation costs, which have significant implications for future reference in the choice of finished vehicle transportation.

Speedy Mexico-EU trade deal promises risks and rewards

2017 ◽  
Keyword(s):  
North America ◽  
Free Trade ◽  
North American ◽  
Free Trade Agreement ◽  
Trade Agreement ◽  
Transportation Costs ◽  
Donald Trump ◽  
Content Type ◽  
The North

Subject Mexico-EU trade talks Significance Talks on modernising the Mexico-EU Free Trade Agreement (FTA) have gained urgency since the election of US President Donald Trump as the prospect of an end to free trade within North America forces Mexican officials to get serious about diversifying relations. While negotiators hope to seal a new EU deal by the end of the year, many issues are yet to be addressed and renegotiation of the North American Free Trade Agreement (NAFTA) is absorbing bureaucratic capacity. Impacts Anti-American sentiment stemming from Washington’s hostility could favour European firms and investors in Mexico. The rush to conclude agreements risks bad deals and political blowback from Mexico’s opposition. Transportation costs and connectivity will ultimately matter more for Mexican diversification than already low tariffs.

scholarly journals ANALISIS PENERAPAN ASEAN-INDIA FREE TRADE AREA (AIFTA) TERHADAP PERDAGANGAN DUA NEGARA INDONESIA DENGAN INDIA MENGGUNAKAN GRAVITY MODEL

2018 ◽  
Vol 11 (2) ◽  
pp. 35-48
Author(s):  
Janes Guratan Djermor ◽  
Ivan Yulianto
Keyword(s):  
Gravity Model ◽  
Free Trade ◽  
Normal Level ◽  
Free Trade Area ◽  
Trade Agreement ◽  
Transportation Costs ◽  
Trade Relations ◽  
Trade Area ◽  
Using Data

The ASEAN-India Free Trade Area (AIFTA) policy has been effectively run since January 1, 2010. It is time to evaluate its benefits for trade relations between its members, especially between Indonesia and India. Analysis of the effectiveness and benefits of AIFTA policy in this study uses the Gravity Model by calculating the variables of Indonesia's GDP, India's GDP, transportation costs, and AIFTA's policies enggaged in trade relations between Indonesia and India using data from first quarter of 2004 until first quarter of 2018. This research shows that implementation of AIFTA does not have any effect on trade between two countries since trade between them had already reaching normal level. This research wishes to give a better insight on policy taking, especially for ongoing and forthcoming trade agreement.

Why is Exit So Hard? Positive Feedback and Institutional Persistence

2018 ◽  
Author(s):  
Taylor St John
Keyword(s):  
Positive Feedback ◽  
Unintended Consequences ◽  
Competitive Dynamics ◽  
Law Firms ◽  
Fourth Section ◽  
New Politics ◽  
The Third ◽  
Institutional Persistence ◽  
Capacity Constrained ◽  
Over Time

Chapter eight analyzes why institutions persist, even when they generate unintended consequences for the states that created them. The chapter sets out a typology of possible actions that governments can take to exit from investor–state arbitration. To date, governments have engaged in remarkably little exit. The second section explores how positive feedback has created a new constituency of law firms and investors with an interest in arbitration and therefore has led to a new politics of ISDS. The third section discusses other types of feedback that have stabilized and developed a dense web of commitments enshrining investor–state arbitration. The fourth section observes that over time, competitive dynamics emerged and define investor–state arbitration today: competition between law firms, arbitration organizations, and even jurisdictions hoping to host arbitrations makes exit and reform more difficult. The barriers to exit may be highest for capacity-constrained states.

Understanding the Economic Implications & Constraints of U.S. Multilateral & Bilateral Free Trade Agreements by Analyzing NAFTA and the U.S.-Colombian FTA

2010 ◽  
Vol 6 ◽  
Author(s):  
Fabiani A Duarte ◽  
Fabiani A Duarte
Keyword(s):  
Economic Development ◽  
Free Trade ◽  
Free Trade Agreement ◽  
Free Trade Agreements ◽  
Trade Agreement ◽  
Trade Agreements ◽  
The United States ◽  
Unintended Consequences ◽  
Economic Implications ◽  
The U.S

By providing over $24 billion in foreign assistance to 154 countries, the United States was the largest economic and humanitarian aid donor in the world in 2008 (Schaefer, 2006; Tarnoff & Lawson, 2009). By viewing the U.S. government through this lens, U.S. free trade agreements (FTA), like U.S. foreign aid, assist economically-weaker countries to develop while advancing specific U.S. foreign policy initiatives. By analyzing NAFTA’s effects on Mexico’s economic growth and the provisions of the signed U.S.-Colombian Free Trade Agreement, this paper demonstrates the inefficiencies and unintended consequences of multilateral and bilateral FTAs. The analysis concludes by suggesting an alternative approach to proactive and productive economic development: regional economic FTAs. Keywords: free trade agreement (FTA), tariff, economic development program, foreign direct investment (FDI), internally displaced persons (IDPs), bilateral FTA, multilateral FTA, regional FTA

The Role of Spatial Demand on Outlet Location and Pricing

2009 ◽  
Vol 46 (2) ◽  
pp. 260-278 ◽  
Author(s):  
Jason A. Duan ◽  
Carl F. Mela
Keyword(s):  
Capacity Constraints ◽  
Spatial Effects ◽  
Spatial Decay ◽  
Spatial Covariance ◽  
Latent Demand ◽  
Capacity Constrained ◽  
Demand Patterns ◽  
Spatial Demand ◽  
Equilibrium Effect

In this article, the authors consider the problem of outlet pricing and location in the context of unobserved spatial demand. The analysis constitutes a scenario in which capacity-constrained firms set prices conditional on their location, demand, and costs. This enables firms to develop maps of latent demand patterns across the market in which they compete. The analysis further suggests locations for additional outlets and the resultant equilibrium effect on profits and prices. Using Bayesian spatial statistics, the authors apply their model to seven years of data on apartment location and prices in Roanoke, Va. They find that spatial covariation in demand is material in outlet choice; the 95% spatial decay in demand extends 3.6 miles in a region that measures slightly more than 9.5 miles. They also find that capacity constraints can cost complexes upward of $100 per apartment. As they predict, price elasticities and costs are biased downward when spatial covariance in demand is ignored. Costs are biased upward when capacity constraints are ignored. Using the analysis to suggest locations for entry, the authors find that properly accounting for spatial effects and capacity constraints leads to an entry recommendation that improves profitability by 66% over a model that ignores these effects.

Incentives to Invest in Transport Cost Reduction - Conceptual Issues and an Application to Electronic Commerce

2003 ◽  
Vol 3 (1) ◽  
Author(s):  
Martin Bandulet ◽  
Karl Morasch
Keyword(s):  
Electronic Commerce ◽  
Cost Reduction ◽  
Negative Impact ◽  
Consumer Surplus ◽  
Relative Strength ◽  
Transportation Costs ◽  
Transport Cost ◽  
Market Demand ◽  
Digital Products ◽  
Investment Level

Abstract Do firms have proper incentives to invest in transport cost reduction? We discuss this question in a duopoly with a local firm and a distant competitor that may invest in a reduction of marginal transportation costs. In a two-stage game with investment in the first and duopoly competition in the second stage, we compare profit-maximizing investment with (constrained) welfare maximization by a social planer. Intuitively, a firm will overinvest if the negative impact on its competitor exceeds the gain in consumer surplus. We analyze how the relative strength of these two effects depends on market demand, firm conduct and investment costs. Applying our results to electronic commerce, we argue that for physical goods either overinvestment or the efficient decision not to invest is the most likely outcome while the specific characteristics of digital products yield either underinvestment or an efficient investment level that reduces transportation costs to zero.

Sign in / Sign up

Export Citation Format

Share Document