Cost Learning Effects Research Articles

The interaction of CM’s encroachment time and OEM’s outsourcing strategy when considering the cost-learning effect

Contract manufacturing has been widely studied in recent years. At the same time, existing research rarely considers when should the contract manufacturer (CM, she) launch a product of her own brand to encroach into the market. To fill this research gap, this study considers a two-period game consisting of one original equipment manufacturer (OEM, he) and one CM. The CM with a cost-learning ability could strategically decide whether and when to produce a final product of her own to encroach the market. The results show that when the OEM has a strong brand advantage, the CM may lose profit from encroachment into the market because her cost-learning capability contributes to grabbing the OEM’s market share and then the decrease in OEM’s orders hurts the CM herself in turn. On the contrary, facing a weak-brand-advantage OEM, the CM will encroach in both periods. Furthermore, the OEM can also derive advantages from the CM’s encroachment when the OEM possesses a strong brand advantage. However, when the OEM’s brand advantage is at a moderate level, refraining from encroachment will result in Pareto Optimality for both the OEM and CM.

Pricing and inventory carryover strategy considering cost learning effect and strategic consumers

AbstractAnticipating the markdown in the future price due to the cost reduction of the firm, more and more consumers tend to delay their purchasing to the later period. Incorporating the strategic behavior of consumers, this paper establishes a two‐period production and selling model under dynamic pricing strategy and price commitment strategy respectively, with considering stochastic learning effect in which the firm may or may not have the inventory carryover option. The results show that the firm may hold inventory under dynamic pricing while no inventory is kept under price commitment. Additionally, consumers' patience level enhances the benefit of inventory carryover. Furthermore, for the firm with relatively high farsighted level and low inventory holding cost, the dynamic pricing equipped with inventory carryover outperforms the price commitment strategy. Finally, numerical examples are conducted to analyze the impacts of important parameters on the firm's choice of pricing strategies.

Dynamic game strategies for construction and demolition waste recycling with learning and reference effects

Construction and demolition waste (C&DW) recycling can effectively reduce the environmental impacts caused by the massive amounts of untreated C&DW, and can promote the sustainable development of the construction industry. This study aims to provide relevant insights for the implementation of C&DW recycling, and can be practically used to guide participants' dynamic strategies in the presence of both the reference price effect and cost learning effect. Based on game theory, a static model is developed as a benchmark, including a construction materials manufacturer and a C&DW recycler under a government subsidy. Then, a dual-period dynamic model combining the learning and reference effects is established to broaden the understanding of C&DW recycling management. On this basis, the decisions and revenues of players are compared and analysed, and managerial insights are obtained through numerical analysis. It is found that both the learning and reference effects affect the manufacturer's decisions and revenues, and that the reference effect has a much greater impact on profit than the learning effect. In addition, only the learning effect has a positive influence on the recycler's recycling efforts and profits, thereby promoting C&DW recycling and reducing environmental impacts. Moreover, government subsidies always benefit the environment and recycler, and as the learning ability becomes stronger, the subsidy becomes more efficient in reducing the environmental impacts and improving the recycler's profit. Comparatively, the impact of subsidy on the manufacturer's profits depends on the learning ability. When the learning ability is relatively high, a higher subsidy is detrimental to the manufacturer in the short term but benefits it in the long term.

Impact of cap-and-trade regulation on coordinating perishable products supply chain with cost learning

<p style='text-indent:20px;'>This paper incorporates carbon emission regulation and cost learning effects to examine a manufacturer-retailer supply chain for deteriorating items over a multi-period planning horizon. We investigate their impacts on supply chain coordination under the assumption that the product demand is affected by the selling price, promotional effort and inventory level. We first propose two algorithms for determining optimal solutions of the centralized and decentralized models. We show that the decentralized system can be coordinated perfectly with a two-part tariff contract. Further, we study necessary conditions under which members of the supply chain can accept this contract. At last, we conduct numerical experiment to illustrate the obtained theoretical results in impact analysis and the robustness of the coordinated model.</p>

Socially responsible supply chains with cost learning effects

Corporate social responsibility (CSR) has been attracting increasing attention. This paper investigates the implications of CSR upon a two-period manufacturer–retailer supply chain with cost learning effects which have been widely observed in different industries. Two scenarios are under consideration: the retailer exhibits CSR in one and the manufacturer does in the other. The analytical results demonstrate that compared with no CSR, the implementation of CSR generates higher pure profit for the entire chain. In contrast to the scenario where the manufacturer shows CSR, in the scenario where the retailer exhibits CSR, the manufacturer charges higher wholesale prices while the retailer charges lower retail prices, resulting in a higher chain-wide profit. Moreover, two-part tariff contracts are designed to coordinate the socially responsible supply chains. When coordinated, if the retailer exhibits CSR the wholesale prices are equal to the realized production cost which results from cost learning effects, while the wholesale prices are lower than the realized production cost if the manufacturer shows CSR. Interestingly, cost learning effects impair the pure profit of the coordinated supply chain when the effect of CSR is sufficiently high.

Collaboration in a low-carbon supply chain with reference emission and cost learning effects: Cost sharing versus revenue sharing strategies

The growing environmental awareness of consumers and the regulation of governments drive supply chain members to collaborate in emission reduction. Considering reference emission and cost learning effects, this study investigates a Stackelberg differential game, where a manufacturer acts as a leader and determines the wholesale price and emission reduction level and a retailer acts as a follower and sets the retail price. Equilibrium emission reduction and pricing strategies in cost- and revenue-sharing contracts are deduced from modelling these two collaboration modes. Results demonstrate that the manufacturer and the entire supply chain prefer the revenue-sharing contract rather than the cost-sharing one, whereas the retailer prefers only the wholesale price contract. High ratios in revenue-sharing contract lead to low emission levels and prices and hence benefit consumers. The environmental awareness of consumers and tax rates considerably affect the emission reduction, but learning effect does not. However, the high learning ability of the manufacturer can improve the performance of supply chain members.

Who should determine energy efficiency level in a green cost-sharing supply chain with learning effect?

Abstract The increasing environmental awareness and green demands drive channel members to jointly take efforts to improve energy efficiency level of products. Considering the cost learning effect, this work develops a differential game model where the retailer (leader) sets retail margin, the manufacturer (follower) determines wholesale price and they jointly invest in energy efficiency level. Two scenarios are considered, where the decision right of energy efficiency level is respectively held by manufacturer (ME) and retailer (RE). Main results indicate that the energy efficiency level is usually governed by the manufacturer rather than the retailer, unless the retailer has a large bargaining power. Besides, the retailer’s preference on the decision right is weakened by a larger cost learning effect or energy efficiency effectiveness, but improved by a greater investment cost. This work contributes to researches of the channel members’ preference on holding the decision right of energy efficiency level in the presence of cost learning effect, and provides important managerial insights on firms’ investment and pricing strategies.

Power capacity expansion planning considering endogenous technology cost learning

We present an power systems optimisation model for national-scale power supply capacity expansion considering endogenous technology cost reduction (ESO-XEL). The mixed-integer linear program minimises total system cost while complying with operational constraints, carbon emission targets, and ancillary service requirements. A data clustering technique and the relaxation of integer scheduling constraints is evaluated and applied to decrease the model solution time. Two cost learning curves for the different power technologies are derived: one assuming local learning effects, the other accounting for global knowledge spill-over. A piece-wise linear formulation allows the integration of the exponential learning curves into the ESO-XEL model. The model is applied to the UK power system in the time frame of 2015 to 2050. The consideration of cost learning effects moves optimal investment timings to earlier planning years and influences the competitiveness of technologies. In addition, the maximum capacity build rate parameter influences the share of power generation significantly; the possibility of rapid capacity build-up is more important for total system cost reduction by 2050 than accounting for technology cost reduction.

Competitive Products' Diffusion Behavior Considering Cost Learning Effect Based on System Dynamics

Competitive Products' Diffusion Behavior Considering Cost Learning Effect Based on System Dynamics

Green supply chain performance with cost learning and operational inefficiency effects

Environmental issues are receiving significant attention from the public, accelerating the development of green supply chain in operations management. This study focuses on the green supply chain performance in a single manufacturer-retailer setup, in which the manufacturer determines energy efficiency level and wholesale price, while the retailer decides on sales price. The unit production cost is jointly affected by cost learning and operational inefficiency effects. Open-loop, feedback and myopic equilibria are subsequently derived, and the corresponding supply chain performance and profit distribution are analyzed. The main results show that forward-looking behavior is preferred to myopic one for channel members. Feedback equilibrium is beneficial to the manufacturer, but is harmful to the retailer. The supply chain efficiencies in forward-looking and myopic situations are lower than the static supply chain efficiency, which results from cost learning and operational inefficiency effects, as well as non-price variable. The manufacturer and the retailer extract more profits under certain conditions, i.e., high cost learning effect, large energy efficiency effectiveness, low operational inefficiency effect or discount rate. However, the corresponding supply chain efficiencies decrease, and the manufacturer's profit proportions are less than 2/3. Investigation of supply chain performance with competition from multiple retailers implies that the effects of system parameters on supply chain performance keep the same directions of single manufacturer-retailer setup, while competition improves supply chain efficiency and manufacturer's profit proportion. This work contributes in involving cost learning and operational inefficiency effects simultaneously in a dynamic environment to explore supply chain performance.

Dynamic pricing and channel efficiency in the presence of the cost learning effect

This paper investigates the impacts of the supply-side cost learning effect on dynamic pricing strategies and the channel efficiency in a decentralized supply chain consisting of a manufacturer and a retailer. The unit production cost incurred by the manufacturer declines as the cumulative output increases. With the manufacturer being the price leader, the interactions between the two channel members are modeled as a Stackelberg differential game, where the two channel members dynamically set the wholesale and retail prices over time to optimize their respective profits. We find that while the cost learning effect is beneficial to both channel members in terms of long-term profitability, such an effect is detrimental to the channel inefficiency caused by price double marginalization. In a setting where the manufacturer sells through competing retailers, we show that the channel efficiency can be improved with the emergence of horizontal competition. Our result also indicates that the channel efficiency with a feedback pricing equilibrium is higher than that with an open-loop equilibrium.

Optimal pricing, production rate, and quality under learning effects

This study investigates the marketing and production problem for a monopolist firm where price, quality and production rate are simultaneous dynamic decision variables under the condition of a dynamic demand that depends on price, quality and cumulative sales. The formulated continuous profit maximization model follows the steps for dynamic optimization to derive optimal price, quality and production policies, wherein a unit production cost that decreases with cumulative production reflects the cost learning effect. Through the differentiable multiplicatively separable demand function, this study analyzes optimal trajectories for determining price, quality, and production rate. The results specify several optimal policies and policy makers would gain insight into the consequence of their decisions that otherwise might have been obscured by sub-optimal analysis.

Monopolist optimum pricing and advertising policies for diffusion models of new product innovations

On the theoretical side, this paper contains a general diffusion model of innovation that includes previous models in the literature as special cases. Optimal price and advertising are characterized qualitatively for the general model and several specific cases. Cost learning effects and discounting of future profits are considered, but repeat sales and likely entry of competitors are disregarded. On the empirical side, eighteen alternative diffusion models for a newly introduced innovation have been estimated and compared using non-linear procedures. Empirical research findings suggest that for the considered case study, price affects the coefficient of imitation whereas advertising affects the coefficient of innovation. Price (advertising) elasticity of demand is found to be increasing (decreasing) over time.

Optimal Pricing Strategies for New Products in Dynamic Oligopolies

This paper deals with the determination of optimal pricing policies for firms in oligopolistic markets. The problem is studied as a differential game and optimal pricing policies are established as Nash open-loop controls. Cost learning effects are assumed such that unit costs are decreasing with cumulative output. Discounting of future profits is also taken into consideration. Initially, the problem is addressed in a general framework, and we proceed to study some specific cases that are related to models presented in recent literature. Three basic classes of sales dynamics are analyzed: competition with price effects only, competition with price as well as adoption effects, and competition with adoption effects only. In some cases it turns out that results which hold for the monopoly case, carry over to the multi-firm case, in the sense that the qualitative structure of optimal pricing strategies is the same in the monopoly and the oligopoly cases. However, due to competitive interdependencies, differences certainly exist in the levels as well as the rates of change of optimal prices.