Entry and exit decisions based on a discount factor approach

Urban development can compromise open space and many valued ecosystem functions such as biological diversity, forest carbon sequestration, and clean water. To maximize the protection of open space and ecosystems, community planners and conservation organizations can take preemptive action either by purchasing land before it is developed or by providing incentives to landowners not to sell their land for development. In either case, the parcels must be prioritized for retention. While a significant body of literature addresses this need for prioritization, optimal reserve selection models do not account for land-price feedback effects that arise in markets where open space conservation competes with development. In competitive land markets, conservation acquisitions can affect land prices either by increasing demand, and thereby shifting the competitive equilibrium, or by inducing amenity premiums. People are willing to pay more for lots that are adjacent to reserves. These price effects can lead to increased development outside of the reserves and unintended loss of open space and valued ecosystem functions. In “Dynamic Reserve Selection: Optimal Land Retention with Land-Price Feedbacks,” S. F. Tóth, R. G. Haight, and L. W. Rogers fill this gap by formulating a linear-integer programming model with adaptive cost coefficients that are endogenous to the parcel acquisition decisions. They show that it is not always optimal to buy as much land for conservation as possible early on in the land retention effort. Buying fewer, smaller but more expensive parcels that have high conservation value and higher risk of development appears to be optimal in many market scenarios. They also show that failure to account for these price effects can lead to significant losses in biological conservation. In the paper “Parameterized Supply Function Bidding: Equilibrium and Efficiency,” R. Johari and J. Tsitsiklis explore a fundamental trade-off in designing markets. The authors consider markets where firms compete to supply a good through a market mechanism. On one hand, sufficient flexibility must be granted to firms in declaring their supply functions to ensure that they can approximately declare their costs. On the other hand, as the strategic flexibility granted to firms increases, their temptation to misdeclare their cost increases as well. Indeed, while in principle arbitrary supply functions allow firms to declare all marginal cost information, in theory and practice we find that such strategic flexibility only encourages the exercise of market power. Indeed, such a phenomenon has been seen in various energy markets around the world. The authors shed light on this trade-off by studying a parameterized class of supply functions that allow firms enough flexibility to communicate information about their production cost, yet not enough flexibility to enable them to exercise market power and cripple the performance of the overall market. In other words, by partially restricting the range of possible supply functions firms can declare, the authors' mechanism design controls “gaming”; nevertheless, they demonstrate the resulting market-clearing mechanism is nearly efficient. Their analysis lends credence to the hypothesis that restricting the strategy space granted to firms can often improve allocative efficiency. A good partial flexible process structure has been proven to be an effective tool to match (random) demand and capacity in both manufacturing and service industries. While most existing literature focuses on discussing the average performance of flexible structures, other interesting questions are: How to design a good partial flexible process structure that performs close to full flexibility in all cases? Could a flexible structure designed by popular guidelines also perform well in the worst case? In “Process Flexibility Revisited: The Graph Expander and Its Applications,” M. C. Chou, G. A. Chua, C.-P. Teo, and H. Zheng study the worst-case performance of the flexible structure design problem under a more general setting, which considers a general class of objective functions. They propose a concept “Ψ-expander” (0 < Ψ ≤ 1), a variant from graph expander, to design partial flexible process structure, and they show that a 1-expander structure performs as well as full flexibility structure in all scenarios. A simple heuristic to design flexile structures in general nonsymmetric systems is developed based on this concept. Using numerical examples studied in previous literature, the structures designed by the heuristic performed favorably compared to other popular flexible structures. In customer service systems, such as call centers or hospital emergency departments, waiting customers are often unable to estimate their own delay. A long wait, coupled with feelings of uncertainty about the length of that wait, leads to poor service evaluation. For system managers, making delay announcements is a relatively inexpensive way of reducing customer uncertainty about delays, thereby improving customer satisfaction with the service provided. In “Wait-Time Predictors for Customer Service Systems with Time-Varying Demand and Capacity,” R. Ibrahim and W. Whitt investigate alternative ways to predict, in real time, the delay of an arriving customer in a service system with customer abandonment and time-varying demand and capacity. These delay predictions may be used to make delay announcements. The authors propose new, simple, and effective ways to generate better delay predictions in many-server queues with a time-varying arrival rate, a time-varying number of servers, and customer abandonment. Because a new project entails enormous uncertainty, it's advisable not to “bet the firm” on the new project. Instead, run a small-scale experiment before making an irreversible investment in project-specific assets. As the experiment proceeds, the likelihood of the project's success is slowly revealed; eventually the firm makes an expansion or an exit (abandonment) decision based on the profitability of the pilot project observed to date. According to real options theory, the decision criterion becomes more stringent (the decision rule requires stronger evidence before action) as uncertainty in the profitability increases, but it is not obvious if this means that it should take longer for the firm to make this decision when there is an increase in the uncertainty of the project's success. In “Acquisition of Project-Specific Assets with Bayesian Updating,” H. D. Kwon and S. A. Lippman examined this issue in a model with project-specific assets and a (pilot) project that is either highly profitable or unprofitable. While noise in the project's profit stream makes it impossible to determine the project's profitability, the firm takes a Bayesian approach to update its belief based on the observed profit stream. The authors show that the expected time it takes to make an expansion or an exit decision is not monotone in the uncertainty. Therefore, stringent expansion/exit criteria do not necessarily imply a long time to make a decision. The results have practical implications for firms faced with expansion via investment in project-specific assets or abandonment of the pilot project because the rules/policy for deciding when to expand and when to abandon are determined in advance, before psychological pressures mount. Moreover, in deciding whether or not to launch the pilot project, it is important to know how increases in uncertainty impact the time until the expansion/abandonment decision is made. Seasonal influenza (flu) is a major public health concern, and the first line of defense is the flu shot. Antigenic drifts and the high rate of influenza transmission require annual updates to the flu shot composition. The World Health Organization recommends which flu strains to include in the annual vaccine based on surveillance and epidemiological analysis. Thus far, the design and timing of the flu shot have been made in an ad hoc manner. In “Optimizing the Societal Benefits of the Annual Influenza Vaccine: A Stochastic Programming Approach,” O. Y. Özaltın, O. A. Prokopyev, A. J. Schaefer, and M. S. Roberts propose a multistage stochastic mixed-integer program to identify an optimal annual flu shot design. They calibrate their model with real-life data and incorporate risk sensitivity using mean-risk objective functions. The results provide valuable insights for pressing policy issues. Dynamic pricing, where price is adjusted over time to match supply with demand, has long been adopted in various industries. Though advanced information technologies further facilitate price changes, the costs of price adjustment prevail and sometimes could be quite significant. In “Integration of Inventory and Pricing Decisions with Costly Price Adjustments,” X. Chen, S. X. Zhou, and Y. Chen develop a stochastic, dynamic inventory system with price adjustment costs, which consist of both fixed and variable parts. To provide effective strategies for firms to manage inventory and set selling price of such systems, they characterize the optimal policies for two special scenarios: one with inventory carryover and no fixed price-change costs and the other with fixed price-change costs but no inventory carryover. For the general system, a heuristic is developed, and its effectiveness is demonstrated numerically. Deterministic fluid models can provide useful first-order approximations for the performance of stochastic queuing models of large service systems, because they des

Previous articleNext article No AccessShort-Run Supply with Capacity ConstraintsTimothy F. Bresnahan and Valerie Y. SuslowTimothy F. Bresnahan Search for more articles by this author and Valerie Y. Suslow Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by The Journal of Law and Economics Volume 32, Number 2, Part 2Oct., 1989Empirical Approaches to Market Power Sponsored by The University of Chicago Booth School of Business and The University of Chicago Law School Article DOIhttps://doi.org/10.1086/467185 Views: 8Total views on this site Citations: 7Citations are reported from Crossref Copyright 1989 The University of ChicagoPDF download Crossref reports the following articles citing this article:Sheng-Ping Yang Entry and Exit Decisions with Switching Regime Excess Capacity, International Advances in Economic Research 24, no.44 (Oct 2018): 351–369.https://doi.org/10.1007/s11294-018-9716-6Anson Soderbery Market size, structure, and access: Trade with capacity constraints, European Economic Review 70 (Aug 2014): 276–298.https://doi.org/10.1016/j.euroecorev.2014.06.003Bjarne Brendstrup, Harry J. Paarsch, John L. Solow Estimating market power in the presence of capacity constraints: An application to high-fructose corn sweetener, International Journal of Industrial Organization 24, no.22 (Mar 2006): 251–267.https://doi.org/10.1016/j.ijindorg.2005.09.003Sheng-Ping Yang Market power and cost efficiency: the case of the US aluminum industry, Resources Policy 30, no.22 (Jun 2005): 101–106.https://doi.org/10.1016/j.resourpol.2004.12.004Bart J. Wilson, Stanley S. Reynolds MARKET POWER AND PRICE MOVEMENTS OVER THE BUSINESS CYCLE*, Journal of Industrial Economics 53, no.22 (Jun 2005): 145–174.https://doi.org/10.1111/j.0022-1821.2005.00250.xB. Stephen Labson Changing patterns of trade in the world iron ore and steel market: An econometric analysis, Journal of Policy Modeling 19, no.33 (Jun 1997): 237–251.https://doi.org/10.1016/S0161-8938(96)00049-XVIVEK GHOSAL INPUT CHOICES UNDER PRICE UNCERTAINTY, Economic Inquiry 33, no.11 (Jan 1995): 142–158.https://doi.org/10.1111/j.1465-7295.1995.tb01852.x

A key characteristic of the Product Life Cycle (PLC) is the depletion of the product's market potential due to technological obsolescence. Based on this concept, we develop a stochastic model for evaluating market entry and exit decisions during the PLC under uncertainty. The model explicitly shows the conditions for the optimality of a two-threshold policy based on the estimated earnings potential of the product, and can be used by manufacturing firms to assess entry and exit decisions under such conditions. To aid the applications of the model in actual decision situations, we also provide the procedures for computing the exact and approximate values of the two thresholds

A key characteristic of the Product Life Cycle (PLC) is the depletion of the product's market potential due to technological obsolescence. Based on this concept, we develop a stochastic model for evaluating market entry and exit decisions during the PLC under uncertainty. The model explicitly shows the conditions for the optimality of a two-threshold policy based on the estimated earnings potential of the product, and can be used by manufacturing firms to assess entry and exit decisions under such conditions. To aid the applications of the model in actual decision situations, we also provide the procedures for computing the exact and approximate values of the two thresholds.

ABSTRACTIn the short run, there can be substantial differences in spot freight earnings between geographical regions of the global freight market for bulk carriers. Such differences can be consistent with an efficient market if they are temporary and if they cannot be exploited financially by pursuing chartering strategies that are based on publicly available information. In this paper, we apply a simple optimal switching model to evaluate whether such chartering strategies exist. We model the spot freight rate differential between the Atlantic and Pacific basins as a mean-reverting Ornstein–Uhlenbeck process and the entry–exit decision using the discount factor approach, which results in optimal trigger values for the entry/exit from each basin. Our empirical results suggest that the market is spatially efficient during normal freight market conditions when there is a surplus of vessels. The tight market conditions during the 2003–2008 freight market boom caused a persistent upward bias in Atlantic freight rates, but also here we find little added value from pursuing an active switching strategy.

Adoption of switchgrass cultivation for biofuel under uncertainty: A discrete-time modeling approach

Learning outcomes After completion of the case study, students will be able to: 1. understand the basis for developing global supply chains for exploring international markets, 2. identify the various sources of geopolitical risk while expanding globally, 3. assess the market entry or exit decisions from a principled and commercial perspective and 4. identify and weigh different options when faced with an exit situation under conditions of geopolitical risk. Case overview/synopsis The Japanese fast fashion brand Uniqlo opened 45 stores in Russia as a part of its international retail expansion strategy. The brand provided affordable fashion for everyone. However, the Russia–Ukraine armed conflict had put the company in a dilemma. The Japanese Government and the public joined the broader global community in condemning Russia’s armed intervention in Ukraine. These countries also imposed economic sanctions on Russia, resulting in many multinational companies winding up their operations in Russia. Uniqlo faced a market exit dilemma. Russia had the largest number of Uniqlo stores in Europe. The company CEO also highlighted the necessity of meeting the clothing needs of the Russian people. However, people in Japan and elsewhere considered Russia as an aggressor nation. Any economic link with the Russian market would be ethically wrong, and consumers in Japan, the USA and the European Union might see this as support for Russia’s war efforts. The company had to choose between continuing operations in Russia or exiting the Russian market. Complexity academic level This case study can be used in basic marketing management and international business courses to discuss the market attractiveness and risk aspects for market entry or exit decisions. It can also be used in advanced courses such as strategic management, global strategy and global political economy, highlighting the impact of geopolitical conflicts on business operations. Supplementary materials Teaching notes are available for educators only. Subject code CSS 11: Strategy.

PRICE or rent control is but one of many forms of legislative action which interfere with private contracting in the market place. To delimit the scope of my analysis, I shall use the term "price control" to refer only to any set of regulations which satisfies the following three conditions. First, the control must fix the price (or income)' terms of private contracts; this categorically excludes any laws which regulate the distribution of income among the contracting parties on a share or percentage basis.2 Second, the control must involve no appropriation of proceeds to or from the government; taxation and subsidization are thus excluded. Finally, the fixing of price must not be associated with direct government sales, purchases, or manipulation of resources so as to maintain the regulated price;3 by this stipulation, price "support" is also excluded. Even on such terms, legal regulations to control price are still many and varied. To evaluate our understanding of the class of phenomena which we seek to explain it is essential that we discover implications refutable by facts. By this criterion the available body of economic theory pertaining to price control is deficient indeed: the massive literature on the subject offers few such implications.4 An alternative approach to analyzing the observable effects of price control is presented here.

The effect of recycling price uncertainty on municipal waste management choices

Playing by the Rules? Agreement between Predicted and Observed Binary Choices

The competition among the regional stake-holders cannot be neglected because they can sabotage the peace process by delaying the focused intra-afghan dialogue. It is, therefore, argued that only Afghans can dilute the influence of external actors and keep them away from interfering in the internal politics of Afghanistan. Without the active participation of Pakistan objectives for durable and long-standing peace cannot be achieved. Pakistan not only provided its good-offices for the negotiation between the parties at different forums but also influenced and persuaded the Taliban factions for negotiations. The question arises that what will be the implications of this deal on Pakistan and how it can play plank the fruitful outcomes from this deal. The results shows that the deal between the US and Taliban has deep-down strategic and economic implications on Pakistan and with better strategy Pakistan can create win-win situation for the other regional stakeholders. Furthermore, the current research is qualitative in nature in which the empirical data and popular literature have critically analyzed to understand the peace agreement in Afghanistan with its different dimensions and perspectives. Policy recommendations are the part of discussion, however paper focuses fundamentally on possible ramifications of Doha peace deal.

Executive Stock Options Pricing with Free Wealth Weights and Continuous Partial Exercise: An Analytic Constrained Portfolio Optimization/Stochastic Discount Factor Approach

This article develops and implements a stochastic optimal control approach to value renewable natural resources in the case of Marine Fisheries. The model includes two sources of uncertainty: the resource biomass and the price of fish, and it can be used by fisheries and regulators to optimally adapt their harvesting strategy to changing conditions in these stochastic variables. The model also features realistic operational cash flows. Using publicly available data on the British Columbia halibut fishery, the required parameters are estimated and the model is solved. The results indicate that price uncertainty is especially important in valuing fisheries and determining the optimal harvesting policy.

The reduction of emissions from shipping is necessary to combat climate change. One viable option is to change the fuels utilized. In this study, we investigate the environmental and economic performance of marine diesel oil (MDO), liquified natural gas (LNG), liquified biogas (LBG), and a mixture of LNG and LBG. We study a real case of a roll-on/roll-off passenger ship (RoPax) in Finland. Life cycle thinking is applied to assess the environmental impact, covering emissions from well to propeller (raw material extraction, fuel production, transportation, storage, and combustion), while the economic implications are estimated through future fuel prices and carbon pricing from 2023 to 2050. The carbon pricing covers different carbon tax schemes, namely stated policies scenario (STEPS), sustainable development scenarios (SDS), and net-zero emissions (NZE). STEPS reflects the existing measures and policies under development; SDS pursues to meet the goal of Paris Agreement, while NZE aims to reach net zero. Adopting LNG would improve carbon dioxide emissions, but the overall climate change impact was not significantly lower than MDO. It is also found that the biggest environmental improvement can be obtained by switching to LBG, although future availability can be an issue. The economic assessment shows that LBG has the highest fuel price uncertainties, although its carbon cost will be the lowest. Alternatively, using LNG & LBG mixture can serve as a transition path to contain climate change while dealing with its price uncertainty and availability.

Decision letter: Graphical-model framework for automated annotation of cell identities in dense cellular images