Consumer Surplus Research Articles

Impact of logistics capacity on duopoly competition: Implications for firms and consumers

AbstractPrice promotion is an effective way to capture market share, as consumer sensitivity to price is universal. Yet, consumer satisfaction with services‐such as logistics‐plays a critical role. Deep price discounts can indeed spike demand, but they can also congest systems, thus prolonging delivery times and diminishing consumer satisfaction. Despite observed significant effects of logistics capacity on consumer and firm payoffs in logistics systems in recent years, economic and operational analysis of these effects remains under explored. This study theoretically examines the influence of logistics capacity on competition between two firms using a refined Hotelling model that incorporates system congestion via a BPR‐type congestion function. Our primary findings include: First, the possibility of multiple equilibria emerges with intermediate product values, fueled by either unilateral price reductions to seize greater market share or price increases to enhance marginal benefits. Moreover, a firm with superior logistics capacity may not always set higher prices at equilibrium. Second, we show that equilibrium pricing exhibits a non‐monotonic relationship with logistics capacity and market size. Lastly, we scrutinize firms' long‐term strategic reactions to changes in logistics capacity and the implications of marginal capacity costs, symmetric or otherwise. Our findings provide the following insights. We caution that the equilibrium pricing strategy is ambiguous when the product value is not extreme because both firms are more likely to engage in random price wars. Intriguingly, while augmenting logistics capacity might elevate service satisfaction, it could paradoxically reduce firm revenue or consumer surplus. Our analysis also indicates that higher marginal capacity costs could, counter intuitively, benefit firms or consumers.

Is it wise for manufacturers to implement preventive maintenance in the sharing business model?

In the sharing business model, manufacturers typically increase customer usage through product design but contend with escalating failure costs stemming from heightened customer usage and moral hazard concerns. The preventive maintenance (PM) typically serves as a means for manufacturers to tackle the growing failure cost problem. However, manufacturers face the challenge of how to make PM strategies in intricate operational environments. We formulate a theoretical model to investigate when a manufacturer should implement PM, taking into account customer usage and product design. Our results suggest that when the fixed cost of PM is low and the customer moral hazard is not sufficiently high, or when both the fixed cost of PM and the customer moral hazard are at moderate levels, it is wise for the manufacturer to implement PM. We also find that the PM can lead to higher consumer surplus by increasing customer utility, achieving a win-win situation. In addition, our findings reveal a positive correlation between the PM effort and product quality, with higher PM effort leading to higher product quality and thus increasing customer usage. In extension models, we further explore the issues of maximising social welfare, non-zero maintenance time and endogenous maintenance frequency

Welfare analysis with uncertain market segment proportions

This study theoretically explores the impact of market segmentation uncertainty on producers’ production decisions and their subsequent effects on producers’ profits, consumer surplus, and social welfare. This uncertainty creates a mismatch between the producer’s supply and consumer demand, while also decreasing the producer’s market power. An uncertain market segment incentivizes the producer to pursue higher-quality information, which generates conflicts between the producer and consumers when the producer faces capital constraints. Conversely, when the producer has no capital constraints, the interests of both parties align and obtaining higher-quality information improves consumer welfare outcomes.

Economic impact and food security effects of trade disruptions in agricultural products for Sweden

The COVID-19 pandemic and geopolitical conditions in 2022–2023 highlighted the vulnerabilities of food supply chains to trade disruptions in agricultural inputs and foods, with the ensuing economic effects on producers and consumers. This study calculated the impact of various disruptions in the trade of agricultural inputs and outputs for Swedish producers and consumers and for food security. To this end, a mathematical programming model of the food sector with a spatial dimension was applied, which accounts for adjustments and interactions between producers and consumers of food. Food security is measured in terms of the self-sufficiency ratio, the ability to produce minimum dietary needs, and economic access for low-income households. The trade scenarios included disruptions to imports of agricultural inputs (fertilisers, fuel, feed, pesticides and foreign labour) and foods. The results showed that the economic effects for producers can be considerable, with a reduction in producer surplus by up to 75%. The decrease in consumer surplus is smaller, amounting to a maximum decrease of 21%. The self-sufficiency ratio and the ability to produce minimum dietary needs can be reduced by 55% and 61%, respectively, but may rise if the disruption to feed imports increases. Economic access to foods is slightly decreased in all scenarios. These results showing different impacts of trade disruptions on producers and consumers and food security metrics highlight the need to undertake extensive assessments to determine whether and how to prevent and mitigate their effects. The economic effects on producers and consumers and the associated impacts on food security are likely to differ, which affects the selection and targeting of policies, such as compensation for economic losses and promotion of food security.

Asset-light or asset-heavy? Implications for ride-hailing platforms’ profits, consumer surplus, and driver surplus

Recently, ride-hailing platforms have started buying vehicles and leasing them to drivers with and without cars to expand supplies and serve more customers, switching from asset-light to asset-heavy companies. Unlike the asset-light model, where the platforms can only induce with-car drivers to use their vehicles to provide services, if the platforms switch to the asset-heavy model, they have an extra supply source that allows both with-car and without-car drivers to rent vehicles.This paper studies the impact of this switch on a ride-hailing platform’s profit, consumer surplus, and driver surplus. We consider a ride-hailing platform that decides whether to buy cars and sets a price charged to customers and a wage paid to drivers. Both customers and drivers are sensitive to the payment terms set by the platform and also to congestion in the system (given by the relative numbers of available customers and drivers in the market).Driven by these features, we find that under the asset-heavy model, as the car purchase cost increases, the platform should shift from inducing both with-car and without-car drivers to rent vehicles to inducing only without-car drivers. However, in the case where the car purchase cost is not too large, the platform should adopt the asset-heavy model, which allows both classes of drivers to rent vehicles, and choose the asset-light model otherwise. We further show that customers do not always benefit from the asset-heavy model because the corresponding total supply may be less than that of the asset-light model, leading to increased congestion. Additionally, we find that the with-car driver surplus of the asset-heavy model may be higher or lower than that of the asset-light model. Finally, if the cost is sufficiently small, when the number of potential without-car drivers is large or customers’ sensitivity to congestion is large, we show that the asset-heavy model can increase platform profit, consumer surplus, and total driver surplus (i.e., the sum of with-car and without-car drivers’ surpluses), resulting in a “win-win-win” outcome.

Pricing and blockchain adoption for competitive sellers on an e-commerce platform with different contracts

We examine the impact of a blockchain technology (BCT) adoption strategy on the decisions and profits of branded companies and counterfeiters, and then discuss how BCT helps counterfeiters transform on a platform offering blockchain services and commission contracts. Our results show that BCT can make the branded seller better off when a platform has more brand-conscious consumers, despite the high adoption fee. Due to the free-riding effect, the counterfeiter’s best choice is often not to adopt BCT. As the fraction of brand-unconscious consumers increases, even with low adoption fee, the branded seller will not use BCT, but the counterfeiter will adopt BCT to transform her business and become a legitimate seller by offering innovative products, which increases consumer surplus. As the counterfeit probability and blockchain added value increase, both sellers proactively adopt BCT to disclose product authenticity, which may worsen the platform and social welfare. Importantly, there is a win–win–win outcome for sellers, platforms and consumers when at least one seller adopts BCT, depending on the interaction among the abovementioned factors. Compared with the proportional-fee contract, the fixed-fee contract improves the cost affordability of both sellers. In the context of different consumer types on platforms, our findings offer guidelines for branded companies to solve the authenticity problem of products and for counterfeiters to transform their businesses.

Renewable compensation policies and conventional energy investment: A theoretical model

Many jurisdictions are simultaneously expanding natural gas and renewable capacities, largely supported by renewable compensation policies (RCPs). However, RCPs' impacts on firms' incentives for conventional capacity investment remain unclear. This paper develops a two-stage theoretical model to investigate this interaction within an imperfect competition and uncertain demand context. Firms initially invest in conventional energy capacity, followed by competing to supply electricity from conventional and previously owned renewables. Conventional output is compensated at market prices, but renewable output is subject to two common RCPs: feed-in tariffs (FiT) and feed-in premiums (FiP). The illustrative numerical example shows that increasing the proportion of renewable output compensated by a FiT from 20% to 80% increases the market-level conventional investment by 18%, leading to an increase in consumer surplus but decreasing firms' profits. These results exemplify the unintended effects of RCPs, encouraging the adoption of conventional generation capacity. The model presented in this paper provides a theoretical foundation for understanding the relationship between RCPs and conventional energy capacity investment—critical for carbon-intensive nations transitioning to renewables while maintaining reliable electricity supply through conventional generation.

Operation strategy for community integrated energy system considering source–load characteristics based on Stackelberg game

Instability in supply and demand, coupled with conflicting market interests, significantly impacts the operational efficiency, reliability, cost-effectiveness, and environmental sustainability of integrated energy systems. To address this issue, an operation strategy for a community integrated energy system based on Stackelberg game theory is proposed, taking into account the characteristics of supply and load. Initially, a master–slave game model for an integrated energy system is established, with energy marketer acting as leader and energy supplier and load aggregator as followers. To manage the uncertainties of wind and photovoltaic power generation, robust optimization theory is employed to construct models for both the short-term and long-term output errors of wind and photovoltaic power generation. This approach allows for a more detailed analysis of the uncertainty associated with wind and photovoltaic power generation. Subsequently, the uniqueness of the equilibrium in the established Stackelberg game model is proven. Utilizing an improved adaptive differential evolutionary algorithm in conjunction with the CPLEX solver, not only is the optimal solution solved for, but also the efficiency of the solution scheme is significantly enhanced. The simulation results demonstrate that the strategy not only boosts the reliability of the integrated energy system but also achieves a cost saving of 1.11%, an increase in energy supplier profit of 5.16%, and a load aggregator consumer surplus of 19.68%. In scenarios considering errors in wind and photovoltaic predictions, the cost savings reach 16.95%, with energy seller and supplier profits improving by 9.34% and 32.47% respectively, and consumer surplus increasing by 18.81%.

Naked exclusion with heterogeneous buyers

We investigate the effects of buyer heterogeneity in a market where an incumbent firm deters entry when it signs enough exclusionary contracts with buyers. With heterogeneous buyers, several well-known results in exclusionary contracting with homogenous buyers are overturned and novel ones emerge. First, inefficient equilibria exist in which exclusionary contracts are signed but entry still occurs, and the loss of consumer surplus falls on small buyers. Second, sequential contracting may be more pro-competitive than simultaneous contracting in the sense that entry occurs under sequential but not simultaneous contracting. When this happens, sequential contracting Pareto dominates simultaneous contracting. We extend our analysis to consider downstream competition and breach of contract.

DOES THE ECONOMIC VALUE OF THE PRAMBANAN TEMPLE REFLECT ITS HERITAGE VALUE?

<p>This study aims to estimate the economic value of the Prambanan Temple tourist attraction using the Travel Cost Method (TCM). The visitor willingness to pay for entrance tickets is used to reflect the economic value of the Prambanan Temple's cultural heritage, assessed with the Individual Travel Cost Method (ITCM) approach. The analysis utilizes Ordinary Least Squares (OLS) regression. The study included 186 respondents. Total visitor willingness to pay for the Prambanan Temple is Rp 10,747,976 ($688.57), with an average visitor willingness to pay of Rp 57,753 ($3.70) per visit. The current entrance ticket price is Rp 50,000 ($3.22). This suggests that the value of the Prambanan Temple's cultural heritage to visitors is higher than the current ticket price. The consumer surplus generated by the 186 respondents is Rp 1,399,358 ($89.65), with a consumer surplus per individual of Rp 7,492 ($0.48). </p>

Preferences and welfare impacts of new metro serving airport access

The construction of a new rail infrastructureto connectairportswith cities plays a vital role in enhancing the accessibility of airport ground access and mitigating negative externalities resulting fromautomobiles. To identify air travelers’ preferences for airport ground access by considering a new metro line in Taiwan, we develop nested logit models, which combine revealed and stated preference data. The results reveal significant effects of travel time, travel cost, and individual characteristics; the metro and taxis are highly substituted for airport access. Consumer surplus or accessibility is not equally distributed across air travelers. Travelers who are female, young adults, lower income, and without vehicles in the household obtain considerable consumer benefits from using the new metro. Policy incentives to time and cost have a small impact on the increase in metro share, but consumer surplus surges considerably.

Market power detection and mitigation measures for the spot electricity market based on bidding equilibrium

The spot electricity market (SEM) faces the challenge of inefficiency problems from market power (MP) abuse. However, previous studies have not adequately addressed such issues as the feasibility of MP mitigation measurements and authenticity of MP detection indicators. In this study, mitigation methods are developed, and MP detection indicators are designed to detect and mitigate the exercise of MP in an SEM in which multiple generators compete unilaterally through a uniform marginal clearing price mechanism. First, the incentives and general rules for rational generators to exercise their MP are analysed, providing theoretical support for the developed approaches. Then, two mechanisms that can mitigate the exercise of MP are devised by limiting the bid increase rate and maximising the consumer surplus. Furthermore, a behavioural detection indicator is designed to measure the MP of an individual generator, while an overall indicator is defined to assess the MP of an entire market. Finally, a joint clearing model is established to help implement the mechanism while promoting a high proportion of renewable energy consumption in the SEM. Case studies demonstrate the effectiveness and feasibility of the proposed approaches.

Analyzing the welfare economic of freight transport companies with disaggregated data for Brazilian states

Efficient use of transport systems can increase well-being and ensure benefits for society. Reducing the costs involved in transport operations can occur through management, investments, or using more efficient infrastructures. Well-being gains are weighted based on economic theory, particularly with the classical welfare function that measures consumer surplus gains. Therefore, this article aims to analyse the economic well-being of freight transport companies with disaggregated data for Brazilian states. Data from a stated preference survey were used for the entire Brazilian territory. We estimate logit models to determine the value of travel time, and a logsum measure was used to calculate differences in well-being for freight transport companies. The results show the heterogeneity of Brazilian shippers when choosing the mode of mode of transport for freight transport companies. Research deepens the investigations underway in Brazil, disaggregating the analysis at the state level and simulating different scenarios to describe well-being and the value of travel time. The results show significant differences in the choice of road modes compared to their competing modes by region in Brazil. The findings indicate that states may have greater marginal benefits in well-being with changes in transport costs, transport time, delivery reliability, and flexibility.

Regulating data sales: The role of data selling mechanisms

We analyze the effects of different data selling mechanisms of a monopolistic Data Broker (DB) who sells consumer data to firms in a downstream market with free entry, where data can be used for consumer price discrimination. We consider three possible data selling mechanisms, namely auctions with and without reserve prices, and Take-It-Or-Leave-It offers, which exhibit decreasing levels of DB’s bargaining power towards firms. We highlight the emergence of an entry barrier effect in the downstream market, regardless of the data selling mechanism. Moreover, we show that the auction-based selling mechanisms, and particularly the auction with reserve prices, induce the DB to sell the lowest quantity of data, implying the lowest level of consumer surplus. Conversely, under TIOLI, the DB floods the market for data, selling to all firms data partitions that overlap over subsets of consumers. Imposing the sale of non-overlapping partitions to all firms would improve consumer surplus and welfare.

The Impact of CSR Implement Modes on Sustainable Supply Chain Pricing and Green Decision Making

Green transformation is an effective way for supply chains to achieve sustainable development. In the heterogeneous substitute product coexistence environment, it is valuable to explore the motivation behind CSR implementation as well as the advantages and differences associated with different members’ CSR implementations. In this study, we consider that the manufacturer produces both green products and ordinary products that are substitutes for each other and construct a CSR-absence scenario (Model N), a retailer implementing CSR scenario (Model R), and a manufacturer implementing CSR scenario (Model M). Applying a game-theory-based method, we obtain the optimal pricing, green decision, and supply chain profit under different scenarios. We analyze the effects of consumers’ green preference, green product function coefficient, and CSR level on decision making and performance. Through comparison and numerical analysis, we find the following: (1) Although the CSR behaviors of the manufacturer and the retailer squeeze the market demand space of the ordinary products, the greenness of the green product increases, and the retail price decreases. This not only enhances the consumer surplus of green products but also increases the profit and social welfare of the supply chain system. (2) The eco-friendliness of green products, product demand, and social welfare levels are the highest when the retailer implements CSR, followed by when the manufacturer implements CSR, and are the lowest in the CSR-absence scenario. In addition, the following retailer can enhance both its and the manufacturer’s profits through implementing CSR within a reasonable range. (3) The numerical analysis results show that, when the functional attributes of the green products meet a certain level, supply chain members implementing CSR does not affect consumers’ choice of green products.

Stockpiling‐based pricing and its welfare effects

AbstractConsumer stockpiling involves the intertemporal demand substitution that allows the firm to differentiate stockpilers from others and employ varying pricing strategies. In this paper, I set up a two‐period monopoly model that incorporates consumer stockpiling behavior to investigate the effect of stockpiling‐based pricing. In equilibrium, I show that when the level of heterogeneity among consumers is high, consumer stockpiling can be used as a device for the firm to identify preferences and price discrimination. Welfare analysis suggests that consumer stockpiling improves consumer surplus and profit despite the associated stockpiling‐based pricing.

Firm decisions and government subsidies in a supply chain with consumer surplus consideration

AbstractThis paper considers a supply chain that consists of a manufacturer and a retailer, who concern their respective profits as well as consumer welfare. Each firm's objective is modelled as a weighted sum of its profit and consumer surplus, with the weight on consumer surplus representing the concern level of the firm. We first examine a push supply chain where the manufacturer determines the wholesale price and the retailer determines the order quantity. We derive the optimal decisions and investigate the impact of the firms' consumer surplus consideration on the interactive decisions of the supply chain members and the overall performance of the supply chain. We show that a higher level of retailer's consumer concern does not necessarily lead to higher consumer surplus because her concern on consumers may be exploited by the manufacturer to improve his objective; and the manufacturer's concern on consumers may not benefit the retailer in terms of her profit, especially when the manufacturer's concern level is relatively low. Nevertheless, compared to the for‐profit supply chain, concern on consumer surplus could be beneficial to both firms' profits as well as consumer surplus, inducing a “win‐win‐win” situation under certain conditions. Furthermore, as a social planner, the government seeks to optimize social welfare by adopting subsidy policies, and we examine two types of intervention policies, that is, subsidizing firms and subsidizing consumers. We show that when subsidizing firms, government's quantity‐based subsidy is always more cost‐effective than sales‐based subsidy. As the firms' concern levels become higher or the demand uncertainty becomes lower, subsidizing consumers can achieve higher social welfare than subsidizing firms. Moreover, we examine the impact of the government's budget constraint and concern level on consumer surplus, and extend the analysis to a pull supply chain to show the robustness of the major findings.

EE272 Treating Patients With Non-Valvular Atrial Fibrillation With Apixaban Provides Substantial Consumer Value and Surplus Compared With Warfarin and Rivaroxaban

EE272 Treating Patients With Non-Valvular Atrial Fibrillation With Apixaban Provides Substantial Consumer Value and Surplus Compared With Warfarin and Rivaroxaban

Effects of information asymmetry on green advertising for remanufacturing within a closed-loop supply chain

Manufacturers invest in Green Advertising for Remanufacturing (GAR) to attract consumers by promoting the eco-friendly benefits of their remanufacturing. Despite this, the production of remanufactured products is often influenced by Third-Party Collectors (3PCs) which handle the collection of used products. Unfortunately, market responsiveness to GAR levels is undisclosed due to proprietary information, which leaves 3PCs to unreasonably set pricing and collection quantities, potentially leading to profit loss. To explore how a two-part tariff (TPT) contract menu facilitates 3PCs in acquiring information regarding the manufacturer’s GAR effectiveness, a closed-loop supply chain comprising one manufacturer and one 3PC is taken into consideration. The optimal decisions are analyzed in three distinct decision-making scenarios: the centralized scenario, the complete information scenario, and the asymmetric information scenario. The research findings suggest that in the presence of information asymmetry, manufacturers with high GAR effectiveness (H-type manufacturers) are inclined to masquerade as manufacturers with low GAR effectiveness (L-type manufacturers). Consequently, H-type manufacturers gain additional profits due to information asymmetry. However, for the 3PC, information asymmetry leads to reduced expected profit when the manufacturer has high GAR effectiveness and increased expected profit when the manufacturer has low GAR effectiveness. Finally, our analysis demonstrates that information asymmetry does not consistently hurt consumer surplus.

Microeconomic analysis of ridesourcing market regulation policies

We develop a microeconomic model of competition between ridesourcing, public transport, and cruising taxis to analyse how alternative ridesourcing regulation policies affect not only the ridesourcing service but also other modes of transport. To maximise social welfare in a framework with congestion externalities, we analyse three alternative regulation policies (i) a charge as a percentage of the ridesourcing trip fare (ii) a fixed charge per ridesourcing trip, and (iii) a fixed charge per ridesourcing vehicle. A randomised search algorithm is programmed and simulations are performed considering the base case of the Metropolitan Region of Santiago de Chile. We find that for the case of speeds below 9 km/h, the market power of the platform is dominated by the congestion externality effect, which leads to an optimum where the regulator charges a tax to the platform. In turn, waiting time for ridesourcing increases, but congestion decreases. Lower congestion scenarios lead to a ridesourcing subsidy, in which the regulation policy increases the number of ridesourcing drivers and reduces waiting time, at the cost of increasing congestion. For a given scenario (either low-congestion or high-congestion), we find that the profits of the agents involved (ridesourcing platform and drivers, taxi drivers, and bus operator) are sensitive to the type of regulation applied, however the total social benefit and consumer surplus are largely insensitive to the regulation adopted, therefore policymakers could take into account, for instance, the effects on the financial situation of the public transport sector when deciding which type of regulation instrument to apply to the ridesourcing sector.