Consumer Surplus Research Articles

Electric vehicle subsidy structure considering network externality under carbon neutrality constraints

PurposePromoting electric vehicles (EVs) is an effective way to achieve carbon neutrality. If EVs are widely adopted, this will undoubtedly be good for the environment. The purpose of this study is to analyze the impact of network externalities and subsidy on the strategies of manufacturer under a carbon neutrality constraint.Design/methodology/approachIn this paper, the authors propose a game-theoretic framework in an EVs supply chain consisting of a government, a manufacturer and a group of consumers. The authors examine two subsidy options and explain the choice of optimal strategies for government and manufacturer.FindingsFirst, the authors find that the both network externalities of charging stations and government subsidy can promote the EV market. Second, under a relaxed carbon neutrality constraint, even if the government’s purchase subsidy investment is larger than the carbon emission reduction technology subsidy investment, the purchase subsidy policy is still optimal. Third, under a strict carbon neutrality constraint, when the cost coefficient of carbon emission reduction and the effectiveness of carbon emission reduction technology are larger, social welfare will instead decrease with the increase of the effectiveness of emission reduction technology and then, the manufacturer’s investment in carbon emission reduction technology is lower. In the extended model, the authors find the effectiveness of carbon emission reduction technology can also promote the EV market and social welfare (or consumer surplus) is the same whatever the subsidy strategy.Practical implicationsThe network externalities of charging stations and the subsidy effect of the government have a superimposition effect on the promotion of EVs. When the network effect of charging stations is relatively strong, government can withdraw from the subsidized market. When the network effect of charging stations is relatively weak, government can intervene appropriately.Originality/valueComparing previous studies, this study reveals the impact of government intervention, network effects and carbon neutrality constraints on the EV supply chain. From a sustainability perspective, these insights are compelling for both EV manufacturers and policymakers.

MERGING LAGGARDS

Abstract We argue that mergers among market laggards (new entrants or innovation challengers) should be treated differently than those involving leaders (established players or first-mover innovators). We show that these mergers can be rivalry-enhancing, either by accelerating entry or promoting innovations, leading to lower quality-adjusted prices and higher consumer surplus. This is more likely to happen when entry (or innovation) costs are relatively high, so that entry (or innovation) is profitable only when it is limited to a few players. In these circumstances, if laggards enter, they will do so probabilistically and inefficiently since each of them would have to condition its entry to scenarios in which other laggards stay out, which may not be possible since entry decisions are secret. By removing or mitigating this coordination failure, a merger among laggards may lead to more entry (or innovation). Such a merger will also be more likely to benefit consumers when the products of laggards and leaders are sufficiently differentiated—that is, when competition is not too intense absent the merger. Importantly, we find that in the presence of fixed entry costs and endogenous entry, fixed cost synergies are relevant for assessing the welfare effects of mergers. These efficiencies enhance the social value of mergers among laggards insofar as they make entry into the market for the merged entity less costly, thereby expanding the spectrum of products available to consumer and increasing their welfare.

Envelopment strategies and contract design of two-sided platforms

Platform envelopment, which describes the embedding of one platform into another platform, is widely adopted by platforms with network effects. The strategic use of platform envelopment is determined by the tradeoff between the benefits of sharing existing users and inconvenience of using the embedded platform. This study investigates when the pure envelopment strategy (PES), mixed envelopment strategy (MES), or no envelopment strategy (NES) should be adopted and examines several coordination schemes for the platforms. A centralized decision-making case and a decentralized decision-making case are first formulated and compared. The results show that NES is the only equilibrium solution under a decentralized decision-making case and the cooperation between the two platforms can lead to higher profit of both platforms by adopting the PES or the MES. We then propose a partial equity ownership (PEO) contract, a proportional fee (PF) contract, and a fixed fee (FF) contract to coordinate the system, benefiting both platforms. The PES or the MES may be the equilibrium strategy under a PEO contract, whereas the MES is the only equilibrium strategy under a PF or an FF contract. This study finds that the adoption of a PEO contract will lead to higher surplus of consumers and providers, and social welfare. In addition, we find that only PEO contract may perfectly coordinate platforms to achieve the same total profit as that under the centralized decision-making case, while PF and FF contracts cannot.

Cooperation mechanism, product quality, and consumer segment in group buying

We analyze the cooperation mechanism in a group buying channel where a supplier sells products to heterogeneous consumers through an organizer. We consider two cooperation mechanisms: traditional wholesale mechanism and commission negotiation mechanism. In particular, suppliers often need to negotiate the commission fee with organizers who promote products in group buying. The organizer faces two types of consumers who differ in their valuation of product quality (i.e., informed consumers and one less-informed consumers). We identify the conditions under which cooperation mechanism and consumer segment can lead to ”win-win” and ”win-lose” outcomes for the supplier and the organizer in group buying. We find that the supply chain incentives are often misaligned under the wholesale mechanism because the supplier extracts the entire profit from the organizer. However, the supplier and the organizer have perfect alignment of preferences when the operating cost is medium and the bargaining power is not so high. We also show that, when the product quality is endogenous, the commission negotiation mechanism can generate more consumer surplus. The theoretical and managerial insights derived from this work contribute to a deeper conceptual and practical comprehension of how suppliers make strategic decisions in group buying settings.

The role of on‐demand delivery platform in competition between manufacturer and retailer

AbstractTraditional retailers can now partner with on‐demand delivery platforms to fulfill consumers' online orders to fight against manufacturers' direct channels. However, it is hard to say whether traditional retailers benefit from cooperating with such platforms due to market encroachment and high commission fees. We build a game‐theoretic model where the manufacturer could decide whether to introduce its direct channel, and the retailer could decide whether to cooperate with the on‐demand delivery platform. We show that when the platform adopts a reasonable pricing and service policy, the retailer can earn more profit when cooperating with the platform. When consumer acceptance of the manufacturer's direct channel is high, the manufacturer should strategically introduce its direct channel even when there are no sales. We also find that the introduction of the platform lowers the retail price at the offline channel, increasing the market's total demand, consumer surplus, and social welfare. The reason lies in the effect of intensifying downstream competition and satisfying the consumer's demand in more market segments.

Is It Better for a Publisher to Release an Audiobook after Its E-Book Version?

The e-books industry is mature, and audiobooks are becoming increasingly popular. More and more publishers are coming to realize that audiobooks could be a potential revenue driver and intend to release audiobooks. Considering that there is a certain substitutability between e-books and audiobooks, publishers need to decide how to release a book in its audible version and its e-book version into the market. In this paper, we incorporate the discount factor and the consumers’ acceptance level for audiobooks into the consumer utility by dividing consumers into two types, high-value type and low-value type, and construct two different release models: releasing the audiobook and the e-book simultaneously and releasing the audiobook after the e-book. Using an optimization tool, we investigate pricing strategies of a monopolistic publisher under two different release models. By comparing the theoretical results of the two models, we find that when the consumers’ patience exceeds a certain threshold, releasing a book in its audible version after its e-book version is better for the publisher, and the publisher should adopt a skimming (refers to decreasing markups over time) pricing strategy for the e-book in this case. Further, the publisher should set a higher price for the audiobook than the e-book, whether or not they release the audiobook after the e-book. In addition, we conduct a numerical analysis to investigate how the discount factor, the percentage of high-value consumers, and the high-value consumers’ acceptance level for audiobooks affect the consumer surplus and the social welfare. This study offers publishers some managerial insights into the complex issues involving pricing and release strategies.

Equilibrium strategies of sharing CSR in a supply chain with manufacturer encroachment

Purpose Motivated by the real-world practice of the thriving e-commerce, manufacturers are transcending traditional boundaries of merely producing and selling directly by implementing encroachment. Concurrently, supply chain (SC) members who overlook the corporate social responsibility (CSR) sharing will be left behind, which is closely linked to their profits. This paper aims to investigate a better way to share CSR under the scenarios of manufacturer encroachment and no-encroachment.Design/methodology/approach This paper constructs game-theoretic models in a SC consisting of a manufacturer (M) and a retailer (R), where the manufacturer can sell products by retailing, and may sell directly by implicating encroachment. The manufacturer and retailer jointly consider whether to share CSR and the proportion of it by taking consumer surplus into account. Furthermore, equilibriums for each model are derived using backward induction. Then, the authors analyse the impact of CSR sharing proportion and compare the equilibrium outcomes under different scenarios. Finally, the numerical analyses are presented to verify the results.Findings Several interesting results are found in this paper. First, the retailer shares more CSR can benefit SC members and social welfare when the manufacturer does not implement encroachment. However, the results may change which is decided by the unit cost of encroachment when the manufacturer does so. Second, the proportion of CSR shared by manufacturer and the unit cost of encroachment has an interactive impact on equilibrium outcomes. Finally, both manufacturer encroachment and SC members share CSR may be the best for the perspective of SC members and consumers.Practical implications Based on the analytical results, this paper provides novel managerial implications to assist manufacturer and retailer in determining the optimal strategies for CSR sharing and encroachment. Furthermore, the appropriate proportion of CSR shared by manufacturer and the unit cost of encroachment may let manufacturer, retailer and consumer surplus achieve a win-win-win situation.Originality/value To the best of the authors’ knowledge, this paper is the first attempt to explore the strategy of CSR sharing under the scenarios of manufacturer encroachment and no-encroachment.

Feasibility of financing nature-based solutions for water security through water tariffs: Evidence from South Africa

Abstract In many countries, catchment restoration is underfunded. This study aims to address whether household water pricing could be used as a mechanism for securing funds for catchment restoration. The objectives were to determine households' willingness to pay (WTP) for their existing water use, investigate whether institutional trust and municipal satisfaction influenced WTP, and establish whether aggregate consumer surplus at the municipal scale could cover the costs needed to finance catchment restoration. Surveys were conducted on 502 households in three metropolitan municipalities in the City of Cape Town, eThekwini, and Nelson Mandela Bay. Contingent valuation revealed that average WTP for water was between 12 and 137% more and 32 and 73% more than what households currently pay for water per month in the City of Cape Town and eThekwini, respectively. Satisfaction with municipal service delivery positively influenced WTP, while institutional trust did not. The City of Cape Town, based on the aggregate WTP from the higher income categories, consumer surplus was 779 million South African Rand (ZAR)/year, more than double the estimated cost required to restore the catchment areas supplying water to the city over 30 years. In eThekwini, consumer surplus was equal to the amount needed over 30 years (250 million ZAR/year). These results demonstrate the significant potential to raise water tariffs for higher income households in metropolitan municipalities.

Water dynamics and environmental social practice in a differential game

This paper investigates how socially and environmentally responsible practice influences the dynamics of a common aquifer and its impact on social welfare. We analyze a differential game between two firms, profit seeking (PS) and environmental corporate social responsibility (ECSR), that pump water to sell it to farmers. The profit of the PS firm is composed of revenues, extraction and taxation cost. Conversely, the ECSR maximizes an objective function composed of profit, consumer surplus, and environmental damage. From the analysis of the model, it emerges that only a balance of the social and the environmental concern can preserve the water table and improve the social welfare.

Merger incentive and strategic corporate social responsibility by a multiproduct corporation

This study investigates a multiproduct corporation's strategic corporate social responsibility (CSR) and the merger decisions by single-plant rival firms. We examine two different timings of choosing strategic CSR games, “merge-then-CSR” and “CSR-then-merge.” In the former case where the merger decision is made first, the subsequently adopted level of CSR increases in product substitutability while its level with a merger is lower than that without a merger. In the latter case where a multiproduct corporation establishes a higher CSR level before merging with rival firms, the committed CSR level decreases in product substitutability while it can increase consumer surplus unless the products are close substitutes. Our findings highlight that mergers can be profitable and benefit society when multiproduct corporation has higher level of CSR.

User Data and Endogenous Entry in Online Markets*

We investigate how the presence of a Data Broker (DB), who sells consumer data to downstream firms, affects firm entry and competition in a horizontally differentiated oligopoly market, in which data allow firms to price discriminate. The DB chooses the price and amount of data sold to each firm. We show that the data sale by the DB reduces excessive market entry, as the competition induced by personalized prices exerts a downward pressure on prices and profits. The data‐induced entry barrier and resulting weakened competition dominates the pro‐competitive effect of personalized prices. Consequently, while the DB's presence might alleviate excessive market entry, it also diminishes consumer surplus.

Passive cross‐holdings, horizontal differentiation, and welfare

AbstractWe study how passive cross‐holdings affect product differentiation and welfare in a Cournot duopoly. We show that increasing unilateral ownership stimulates total investments, and therefore improves social welfare. Such cross‐holdings should not be controlled in view of social welfare. However, we identify an inverted‐U (a negative) relationship between consumer surplus and ownership when the demand is small (large). Then a government might apply intervention thresholds for passive ownership if it uses consumer surplus as the appropriate standard for antitrust enforcement. We further consider symmetric bilateral cross‐holdings and show that our results are in general robust, but increasing ownership will generate more serious competition harms than unilateral cross‐holdings. Thus, special concerns need to be given to bilateral cross‐holdings.

An Ex-post Impact Assessment of Seed-to-Seed Mechanization in Maize in Telangana State, India

In Telangana, India, maize is cultivated in large areas next to rice and cotton. Considering the importance of the crop, Professor Jayashankar Telangana state Agricultural University (PJTSAU) is focusing on the development of new maize hybrids and agro-technologies that increase yield and income for farmers and reduce input and management costs. In order to evaluate the impacts of seed-to-seed mechanization technology, the Economic Surplus (ES) approach was applied in the present study that quantifies aggregate social benefits which includes producer and consumer surplus. Results revealed a total surplus of Rs. 19.61 lakhs, mainly benefiting producers (72.09 per cent) and consumers (27.91 per cent). The investment in seed-to-seed mechanization demonstrated a promising 23 per cent internal rate of return (IRR), a net present value (NPV) of Rs. 3.2 lakhs, and a favorable BC ratio of 1.67:1. The results of study found that the adoption of novel technology increased farm income and reduced the labour cost.

Corporate social responsibility and tariff policy in a differentiated mixed duopoly

AbstractIn this paper, we assume that the domestic public firm competes in the market with a foreign private firm that cares about consumer surplus and the domestic government imposes tariffs on foreign firm. We aim to analyze the influence of the corporate social responsibility (CSR) level of foreign firm on privatization and tariff policy. It shows that if the government implements a privatization policy for the domestic public firm, the optimal degree of privatization decreases in the CSR level of foreign firm. Under the optimal privatization policy, if the product differentiation is relatively small, the equilibrium tariff increases in the CSR level; if the product differentiation is relatively large, the equilibrium tariff decreases in the CSR level; if the product differentiation is moderate, the relationship between the equilibrium tariff and CSR level is an inverted U‐shape. We further consider the policy implications under sequential moves of firms.

Content Length Limit: How Does It Matter for a Consumer-to-Consumer Media Platform?

Our study is inspired by the rapid growth of consumer-to-consumer (C2C) media platforms such as TikTok. There are three key findings. First, we show that when content pieces on the platform are longer, viewers set a higher standard of match value in selecting content to view, leading to a lower click-through rate of contributed content on the platform. This finding suggests that a tight limit on content length increases click-through rate. Second, we show that extended content length on the platform first enhances platform performance but then hurts its performance, following an inverted U-shape curve. This pattern holds true for short-term performance measured by viewer traffic and total viewing time, as well as for long-term performance measured by total consumer surplus. This finding suggests the existence of an optimal content length. Third, we find that the optimal content length maximizing viewer traffic is smaller than the one maximizing total viewing time, which is further smaller than the one maximizing consumer surplus. As such, a platform that switches the strategic focus from short-term advertising revenue to long-term growth will benefit from extending the content length limit.

The Impact of Cap-and-Trade Mechanisms and Bank Credit on Renewable Energy Investment

In this work, the bank credit enriches renewable energy investment channels, and the optimal equilibrium solutions under no cap-and-trade mechanism (NM), the grandfathering mechanism (GM), and the benchmarking mechanism (BM) are derived and compared. The main results are as follows: First, from the perspective of environmental performance, both GM and BM are more conducive to promoting the electricity generator's renewable energy investment than NM, in which the BM perform far better than the GM. Second, from the perspective of economic performance, BM and NM may be the unique equilibrium mechanisms, depending on the unit and total carbon quotas. Third, to tradeoff the environment and economic performance, BM is the optimal mechanism in the long term to obtain a win-win-win outcome for the renewable energy investment, the electricity generator and retailer, and consumer surplus. Although GM always hurts the electricity retailer and consumer surplus under any situation, the electricity generator may be beneficial, and the total carbon emission is also the least. Therefore, some mechanisms, like profit distribution, can lead GM to become the optimal mechanism. Finally, raising bank credit rates is neither conducive to renewable energy investment and economic performance nor to carbon emission reduction.

Government Subsidies and Policies for Mask Production Under COVID-19: Is It Wise to Control Less?

Under the COVID-19 pandemic, governments worldwide have subsidized manufacturers or consumers on the production or purchase of masks. However, the impacts of these subsidies on the mask supply chain (MSC) operations are unclear. Motivated by our interview with a mask manufacturer as well as the observed real-world practices, we establish consumer utility-based stylized models to analytically examine government subsidies and policies in the MSC. We utilize the infection transmission model to capture the social health risk during the COVID-19 outbreak. The government aims to maximize social welfare, which includes the manufacturer's profit, consumer surplus, social health risk, and government subsidy expenditure. Results indicate that when the price is not controlled (i.e., the manufacturer decides it), the manufacturer and consumer subsidy programs are equally efficient in enhancing consumer surplus as well as reducing harm to social health risk under COVID-19. Thus, the government can conduct a subsidy scheme that is easier to implement in practice. However, we surprisingly find that the government's excessive intervention will cause disequilibrium in the MSC. When the price or the manufacturer's dishonest behavior is fully controlled by the government, subsidizing the MSC is not always advisable. Besides, our findings are consistent with the public interest theory; that is, the proper implementation of dishonesty prevention and pricing control policies can improve social welfare but sacrifice consumer surplus. Our results contribute to healthcare operations management and generate managerial insights for MSC management during COVID-19 with industrial validation.

Optimal Pricing and Quality Decisions in Supply Chains With Consumers’ Anticipated Regret and Online Celebrity Retailers

Shopping on a live-streaming e-commerce platform has become a popular way of consumption. In this article, we build models to study the decision-making of online celebrity retailers (OCRs), taking into consideration consumers’ anticipated regret behaviors. We explore the OCRs optimal pricing and quality decisions under the basic models and further examine the OCRs sales efforts in the extended model. We investigate the impact of consumers’ anticipated regret behaviors on the OCRs profit. After that, we examine when the supply chain with the OCR can achieve the win–win outcome. To assess the robustness of the results, we conduct extensive numerical studies of the basic and extended models. We derive a counterintuitive result that negative consumers’ anticipated regret does not necessarily hurt the OCRs profit and consumer surplus. In addition, a low consumers’ search cost may instead lead to higher profit for the OCR. If the channel construction cost of the live-streaming platform is low, the OCRs product quality and price will decline. The OCRs costs of handling returns and maintaining sales channels can help the supply chain achieve the win–win outcome for both the OCR and consumers.

Modular design of new products and remanufacturing of used products under mass customization

Modular architecture design can not only increase the product variety and thus make mass customization (MC) easier, but also improve interchangeability and then lower the remanufacturing cost. This paper models a remanufacturing MC supply chain with one manufacturer and one retailer. The manufacturer, as a Stackelberg game leader, designs and then sells the new and modular MC products via its brand retailer, and meanwhile the remanufacturing of used MC products would be carried out by either the manufacturer or the retailer. We study the optimal modular design for new MC products and the best remanufacturing mode for used MC products. One centralized and two decentralized decision models are formulated, and the equilibrium solutions of proposed models are compared and analyzed. Findings show that, compared to the retailer-remanufacturing mode, the manufacturer-remanufacturing mode can be superior in terms of the ability to cope with customer customization requirements (i.e., the modularity level), total supply chain profit, and consumer surplus. Moreover, both supply chain members and consumers would prefer the manufacturer-remanufacturing mode when the parameters meet certain conditions. We also extend the model to two scenarios: the remanufacturing is bounded by cores supply and the retailer acts a leader, so as to verify the robustness of main results. The above theoretical results are verified by numerical examples.

Behavior-Based Pricing in On-Demand Service Platforms With Network Effects

Many on-demand service platforms have begun to implement behavior-based pricing (BBP). Unlike traditional firms, these platforms have network effects and function as intermediaries that connect providers with consumers, while not charging any fees to providers. In this study, we consider two horizontally differentiated on-demand service platforms and examine how BBP adoption affects the platforms’ profit and consumer/provider surplus under network effects. The results show that network effects and the discount factor play critical roles in determining whether BBP can yield higher profits. When the platforms are sufficiently myopic, and the strength of cross-side network effects is relatively weak, using BBP generates more profits; otherwise, using BBP makes the platform worse off. BBP always creates higher consumer surplus, reduces the average consumer surplus of switchers, and increases the average consumer surplus of repeat consumers. BBP always decreases the surplus of providers serving switchers and conditionally increases the surplus of providers serving repeat consumers. Under asymmetric BBP, platforms will not always engage in poaching the rival's consumers and consumers are worse off with poor services. Using asymmetric BBP can be lose–lose, lose–win, or win–win for platforms and consumers, which depends on the relationship between the perceived value, network effects, and service quality.