Fixed-fee Contract Research Articles

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.

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.

Commission-Rate vs. Fixed-Fee Contract in a Supply Chain of Mobile Apps Involving Risk

We consider a supply chain of a mobile app consisting of a platform and a developer, where demand is uncertain and is affected by the both the selling price and the quality level of the app. Two types of contract are investigated, based on the commission scheme stipulated by the platform: commission rate and fixed fee. For each contract type, we derive closed-form expressions for equilibrium assuming that the parties are risk sensitive. For the case of risk-neutral parties, we provide a numerical comparison.

Exclusive and non-exclusive licensing with shelving

We consider a market of technology transfer and licensing with an outside innovator and two asymmetric potential licensees where the licensees have asymmetric absorptive capacities of a cost reducing innovation. The low-cost efficient licensee/firm can only benefit from the new technology if the size of the cost reducing innovation is strictly bigger than the cost difference from its competitor. The high-cost firm always benefits from the new technology regardless of the size of the innovation. This leads to the possibility of strategic shelving of the innovation by the efficient firm. Under this backdrop, we characterize the optimal licensing contracts of the outside innovator. We find that in equilibrium, the innovator will use a fixed fee contract for some parameters and royalty or two-part tariff contract(s) for other parameters. Equilibrium fixed fees and royalty rates will also vary depending on the cost asymmetry and the size of the innovation. The optimal licensing contracts can be exclusive or non-exclusive, and shelving of the new technology may or may not happen which has welfare implications. We also investigate the first- and second-best licensing contracts in this environment and discuss their possible implementation.

Platform contract selection and coordination contract design in reward-based crowdfunding

<p style='text-indent:20px;'>As a new financing method, crowdfunding has alleviated the capital pressure for start-ups, and has attracted extensive attention of scholars. As an intermediary, crowdfunding platforms obtain benefits from providing services. However, the way of charging commission fees still remains a problem for platforms. This paper investigates the impacts of three service contracts, i.e., revenue sharing contract, per-unit fee contract, and fixed fee contract on the creator and platform. Using backward induction, we derive equilibrium results and get some conclusions. First, we find that under fixed fee contract, due to the trade-off between commission fee and crowdfunding success probability, the platform can only make decisions according to first-order conditions, and get partial profits from the creator. This contradicts the traditional view that the fixed fee contract allows leaders to get all the follower's profits in a stackelberg game. Further, we find that compared with revenue sharing contract and per-unit fee contract, the fixed fee contract is mostly although, not always worse (better) for the platform and system (the creator). Third, in the case of consumer homogeneity, we prove the equivalence of revenue sharing contract and per unit fee contract. However, we find that the efficiency of revenue sharing contract decreases when quality is endogenous, while when consumers are heterogeneous, the advantage of per unit fee contract for the platform decreases. In addition, we design a two-part tariff contract and prove that it can achieve coordination when the platform bears partial fixed cost. The two-part tariff contract can simultaneously improve the benefits of all parties with the appropriate parameters.</p>

What type of contract should e-tailers offer sellers when facing internal competition.

This paper investigates whether an e-tailer should act as a platform and offer customers the product of a seller who can reach customers only through the e-tailer, and if so, what type of contract to offer the seller: a proportional commission based on revenue or a fixed fee per unit sold. The e-tailer also chooses the product line design: offer only her own product, offer only the outside seller’s product, or offer both her own product and the seller’s product. Intuitively, when the e-tailer’s product outperforms the seller’s product in terms of value-to-cost ratio, the e-tailer should not offer the seller’s product. However, non-intuitively, we also identify conditions in which the e-tailer remains better off not opening her platform to the seller even though the seller’s value-to-cost ratio is higher than the e-tailer’s and show how these conditions depends also on the consumers valuations. Regarding the type of contract to offer the seller, we find that most of the time, a proportional commission based on revenue is the best contract, guaranteeing the highest e-tailer profit. However, this is not always the case since there are situations when a fixed fee contract reduces the potential of internal competition.

Fixed Fee or Proportional Fee? Contracts in Platform Selling Under Asymmetric Information

ABSTRACT In platform selling, platforms commonly charge third-party sellers a commission fee, which affects sellers’ decision making and platforms’ contract choice. This study explores this choice where a platform privately knows the market size and intends to signal to a seller. We aim to provide researchers and platform-selling practitioners insights into contract and information strategies. The result shows that the fixed-fee contract leads to either a costly or a costless signaling scenario. In costly scenarios, the high-demand platform must downward distort the fixed rent to distinguish itself from the low-demand platform. This distortion results in a different consensus on two players’ contract preference when the commission rate in the proportional-fee contract is exogenous. Under symmetric information, consensus is achieved only on the proportional-fee contract. However, in asymmetric information settings, this consensus may arise on fixed-fee contracts if market uncertainty is high. Furthermore, the comparison of information strategies reveals that players can reach an agreement on both the information-sharing strategy and the proportional-fee contract under certain conditions. When the platform endogenously determines the commission rate, this decision making can also signal demand type, and only the proportional-fee contract leads to a win–win outcome.

Supply Chains and Antitrust Governance

Antitrust regulations are meant to promote fair competition in the market, but balancing administrative and legal costs with enforcement can be difficult when multilayered supply chains are involved. The canonical example of this challenge is the landmark Illinois Brick ruling, which limits antitrust damages to only the direct purchasers of a product; for instance, consumers can file antitrust claims against colluding retailers but not against colluding manufacturers—only retailers can file claims against manufacturers. This controversial ruling was meant to reduce legal costs, but it can clearly lead to missed enforcement opportunities. In this paper, we demonstrate how the Illinois Brick ruling interacts with contracts adopted in the supply chain, and we show that otherwise equivalent supply chain arrangements can have markedly different effects. In particular, we find that wholesale price, minimum order quantity, revenue sharing, and quantity discount contracts lead retailers to take legal action against manufacturers in the event of collusive behavior. However, the wholesale price plus fixed fee contract structure (also known as a two-part tariff or slotting fee contract) facilitates collusion among the manufacturers with retailers compensated by the fixed fee and not filing the antitrust litigation. We further demonstrate that collusion is more likely under high demand uncertainty and high competition at the retail level but is less likely under high competition at the manufacturer level. Our paper helps public enforcers identify market conditions conducive to antitrust violations. This paper was accepted by Vishal Gaur, operations management.

Sunk Cost Fallacy, Self-control, and Contract Design

This paper examines the sunk cost fallacy as a self-commitment device in mitigating self-control problems and analyzes its implications for contract design. The sunk cost fallacy can lead to over-consumption and escalation of commitment. We show that consumers anticipate the fallacy ex-ante, and can strategically use it to mitigate their self-control problem. Therefore, a firm's optimal pricing contract has to balance the demand for flexibility due to the sunk cost fallacy and the demand for commitment due to the self-control problem. We find that the optimal fixed fee for investment goods (e.g., gym attendance) has a U-shape relationship with the fallacy when the consumer has self-control problems: i.e., the optimal fixed fee first decreases and then increases with the sunk cost fallacy. We compare the optimal fixed-fee contract with a pay-per-use contract which does not induce the sunk cost effect. We also investigate two commonly-observed pricing schemes: a contract menu including a fixed fee and a pay-per-use fee, and a two-part tariff. Finally, we analyze the implications of different accounts of the sunk cost fallacy --- the regret-based and the memory-cue-based account, highlighting the importance of understanding the underlying psychological mechanisms of the fallacy for contract design.

Licensing under Cournot vs Bertrand competition

In this paper we consider, on one hand, a differentiated Cournot model, and, on the other hand, a differentiated Bertrand model, when one of the firms engages in an R&D process that gives an endogenous cost-reducing innovation. The aim of the present paper is two-fold. The first is to study the licensing of the cost-reduction by a per-unit royalty and a fixed-fee in these Cournot and Bertrand models. The second is to do a direct comparison between Cournot model and Bertrand model. We analyse the implications of these types of licensing contracts over the R&D effort, the profits of the firms, the consumer surplus and the social welfare. We show that some previous results for two-part tariff licensing are not robust, in the sense that they can be not true for just either a per-unit royalty contract or a fixed-fee contract. Furthermore, by using comparative static analysis, we conclude that the degree of the differentiation of the goods assumes a great importance in the results. We also discuss the optimal licensing, meaning that which licensing method is preferred, in each of the duopoly models considered.

Oversight and Efficiency in Public Projects: A Regression Discontinuity Analysis

In the United States, 42% of public infrastructure projects report delays or cost overruns. To mitigate this problem, regulators scrutinize project operations. We study the effect of oversight on delays and overruns with 262,857 projects spanning 71 federal agencies and 54,739 contractors. We identify our results using a federal bylaw: if the project’s budget is above a cutoff, procurement officers actively oversee the contractor’s operations; otherwise, most operational checks are waived. We find that oversight increases delays by 6.1%–13.8% and overruns by 1.4%–1.6%. We also show that oversight is most obstructive when the contractor has no experience in public projects, is paid with a fixed-fee contract with performance-based incentives, or performs a labor-intensive task. Oversight is least obstructive—or even beneficial—when the contractor is experienced, paid with a time-and-materials contract, or conducts a machine-intensive task. This paper was accepted by Serguei Netessine, operations management.

Luxury Brand Licensing: Free Money or Brand Dilution?

Marketing research has traditionally focused on centralized brand-extension strategies where a brand expands its product offerings by controlling the design, production, marketing and sales of new products `in-house'. However, luxury brands frequently use `brand licensing' as a decentralized brand-extension strategy under which a brand licenses its brand name to an `external licensee' that designs, produces and sells the new product. Licensing is a time-efficient and cost-effective brand-extension strategy for luxury brands to reach out to their aspirational, low-end consumers (`followers') who value a brand more when more high-end consumers (`snobs') purchase the brand's primary product (i.e., `positive popularity effect'). On the other hand, over-licensing might dilute the brand for snobs who value brand exclusivity (i.e., `negative popularity effect'). We develop a game-theoretic model to study luxury brand licensing in the presence of these two countervailing forces. First, in the monopoly setting (a benchmark), we find that the monopoly brand should license only when the negative popularity effect is not too high, and it should prefer `royalty licensing' over `fixed-fee licensing' when the negative popularity effect is intermediate. Second, to explicate our analysis, we study the duopoly setting under fixed-fee contracts. In contrast to the monopoly setting, we find that fixed-fee licensing can `soften' price competition between brands so that licensing is `always' profitable for both brands under competition. Interestingly, in equilibrium under fixed-fee contracts, competing brands face a prisoner's dilemma and both brands prefer not to license, even though both would be better off if they could commit to fixed-fee licensing. Finally, we expand our analysis of the duopoly model by incorporating royalty licensing in addition to fixed-fee licensing. We find that, in contrast to fixed-fee licensing, royalty licensing can `intensify' price competition so that both brands have to lower their prices. Consequently, when the positive popularity effect is sufficiently strong, fixed-fee licensing `dominates' royalty licensing. We also show that, under competition, luxury brands should adopt royalty contracts only when the licensing market is large, and positive and negative popularity effects are small enough.

Supply Chains and Antitrust Governance

Antitrust regulations are meant to promote fair competition in the market, but balancing administrative and legal costs with enforcement can be difficult when multi-layered supply chains are involved. The canonical example of this challenge is the landmark Illinois Brick ruling, which limits antitrust damages to only the direct purchasers of a product; for instance, consumers can file antitrust claims against colluding retailers but not against colluding manufacturers -- only retailers can file claims against manufacturers. This controversial ruling was meant to reduce legal costs, but it can clearly lead to missed enforcement opportunities. In this paper we demonstrate how the Illinois Brick ruling interacts with contracts adopted in the supply chain and we show that otherwise equivalent supply chain arrangements can have markedly different effects. In particular, we find that wholesale price, minimum order quantity, revenue-sharing and quantity discount contracts lead retailers to take legal action against manufacturers in the event of collusive behavior. However, the wholesale price plus fixed fee contract structure (a.k.a. a two-part tariff or slotting fee contract) facilitates collusion among the manufacturers with retailers compensated by the fixed fee and not filing the antitrust litigation. We further demonstrate that collusion is more likely under high demand uncertainty and high competition at the retail level but is less likely under high competition at the manufacturer level. Our paper helps public enforcers identify market conditions conducive to antitrust violations.

Contract and product quality in platform selling

More and more e-tailers (platforms) are allowing manufacturers direct access to customers. Two common contracts are offered by platforms to manufacturers: the revenue sharing contract where a platform appropriates a portion of the manufacturer’s revenue, and the fixed fee contract where a platform charges a fixed rent for each sale. Using an analytical model, this paper studies the interrelationship between a platform’s contract choice and a manufacturer’s product quality decision. We find that if product quality is exogenously given, the platform will always adopt the revenue sharing contract. If the manufacturer endogenously decides the quality, however, the platform’s contract choice may be changed. This is because the revenue sharing contract, compared to fixed fee, leads to a lower selling price of the manufacturer, whereas the fixed fee contract can motivate a higher quality than does revenue sharing. As a result, a large (small) market heterogeneity induces the platform to adopt the revenue sharing (fixed fee) contract. We also extend the model to several directions, finding that longer product line, manufacturer competition, lower marginal production cost, and higher platform cost all tend to induce the platform to put forward a fixed fee contract; while if quality decision is less flexible than contract decision, the platform is more ready to embrace revenue sharing. Besides, when there are two platforms competing for the same market, they should differentiate their contract choices so as to mitigate competition.

Optimal concession contracts for landlord port authorities with different pursuing goals

ABSTRACTThis paper investigates how landlord port authorities should offer concession contracts to their terminal operators under two different goals, by building a two-stage game for each goal. If maximizing the weighted sum of fee revenues and throughout benefits is port authorities’ goal, then the optimal concession contract can be any of the two-part tariff, the unit-fee, and the fixed-fee contracts. Accordingly, our special cases include previous works assuming that port authorities maximize either fee revenues or throughput benefits. By contrast, if maximizing the social welfare is the goal, then we find that subsidizing terminal operators, instead of charging them, is port authorities’ best choice. This result is not yet discovered in the literature.

Technology transfer in prescription drug market

PurposeMany people in developing countries are suffering from serious diseases, such as HIV and tuberculosis. On the other hand, drug patents impact the availability of the drug for patients. Pharmaceutical technology transfer is widely used by domestic and foreign pharmaceutical enterprises because it promotes the availability of the drug for patients. The purpose of this paper, which is on drug technology transfer, is mainly to discuss how to solve the conflict between drug patent protection and public health from the perspective of the law, but not from the perspective of economics. To fill this gap, the authors introduce a model in the prescription drug market and analyze how a foreign manufacturer that produces brand name drugs authorizes a domestic enterprise that produces common drugs.Design/methodology/approachIn this paper, the authors consider a situation that if the patent holders are provided a certain amount of compensation, then whether compulsory licensing would be an effective tool to promote competition and improve the availability of drugs. Furthermore, they also consider three different cooperation mechanisms, namely, fixed-fee contract, royalty contract and two-part tariff contract, under the case of technology transfer and give the condition of which contract would be better under different scenarios.FindingsIt is found that the product differentiation and the agent behavior of doctor in the domestic market have a deep impact on the foreign enterprise’s decision on technology transfer. If both fixed-fee contract and royalty contract are permitted, foreign enterprise will choose different transfer contracts under different conditions. Under two-part tariff contract, it is equivalent to a fixed-fee or royalty contract under certain conditions. Furthermore, all contracts can improve patients’ benefits, while the royalty contract and the two-part tariff contract would reduce importer’s social welfare under certain conditions.Originality/valuePrescription drugs can treat many acute diseases and improve people’s quality of life. On the other hand, it requires investment in pharmaceutical research and development and is hard to afford the drug for the people living in poverty. This paper tries to solve the problem by introducing three cooperation contracts. The authors consider an innovative drug company and a regular drug company. The regular drug company can improve the quality of its drug by signing a technology transfer agreement with the innovative company. Three contracts are discussed in this paper; they are fixed-fee contract, royalty contract and two-part tariff contract. The authors examine the impact of different contracts on the companies’ profit, patients’ benefit and social welfare. It is found that quality differentiation of drugs and doctor behaviors can have large impacts on the company’s decision about technology adoption as well as contract choice strategies. In all of the three contracts, patients’ benefit improves, while the profit of the two companies and social welfare can increase or decrease under different contracts.

An investigation into e-commerce service chain model algorithm

On the basis of the traditional fixed-fee contract, three specific contract forms' models (single contract, menu contract and confused contract) are discussed in service supply chain with effort-sensitive demand and asymmetric information. Under the service supply chain management, there is a class of demands with effort-sensitive members and asymmetric information. While efforts of service supply chain members have impact on market demand, the members can have more choices in pursuing profit maximisation in terms of price, volume and effort level. Under such circumstances, there is one more route to realise service supply chain coordination, namely choosing the suitable effort level in the scope of service effort to realise the balance between pricing and effort level on the basis of negotiated price, volume and effort level. Solutions of the three contract models are optimised and analysed. The solutions' effect and meaning are pointed out for the service supply chain contract forms.

An investigation into e-commerce service chain model algorithm

On the basis of the traditional fixed-fee contract, three specific contract forms' models (single contract, menu contract and confused contract) are discussed in service supply chain with effort-sensitive demand and asymmetric information. Under the service supply chain management, there is a class of demands with effort-sensitive members and asymmetric information. While efforts of service supply chain members have impact on market demand, the members can have more choices in pursuing profit maximisation in terms of price, volume and effort level. Under such circumstances, there is one more route to realise service supply chain coordination, namely choosing the suitable effort level in the scope of service effort to realise the balance between pricing and effort level on the basis of negotiated price, volume and effort level. Solutions of the three contract models are optimised and analysed. The solutions' effect and meaning are pointed out for the service supply chain contract forms.

Inventory Service Target in Quick Response Fashion Retail Supply Chains

Different fashion brands have different inventory service targets. To achieve the desirable inventory service level without the need of holding a lot of inventory, fashion companies commonly adopt the quick response practice. In this paper, we conduct an analytical study on the influence played by the inventory service target on quick response fashion retail supply chains. To be specific, we consider the case when the fashion retailer, who is the channel leader, aims to achieve an inventory service target in its inventory planning. We explore impacts of the inventory service-targeted quick response program, in terms of expected profit, and profit risk on the fashion retailer, the fashion manufacturer, and the fashion supply chain system. We also examine the quick response’s impact on social welfare. We show how three practical contracts, namely, the fixed-fee contract, the wholesale pricing contract, and the product variety contract, can be employed to achieve a win–win situation in the fashion retail supply chain system with the adoption of the inventory service-targeted quick response program. Closed-form managerial insights on how the inventory service target affects the expected benefit of quick response, the reduction of profit risk under quick response, the expected gain of social welfare, the achievability of the win–win situation, and the setting of contractual parameters, are derived.

Optimal concession contracts for landlord port authorities to maximize traffic volumes

This article analyzes optimal concession contracts offered by a landlord port authority to competing operators of container terminals. The port authority pursues traffic-volume maximization. Three contract schemes considered are fixed-fee, unit-fee, and two-part tariff. A two-stage game is constructed to characterize interactions between the port authority and two terminal operators. We discover that the fixed-fee contract is the best choice for the authority. Terminal operators’ congestion costs and competition modes have no impact on this contract choice. Our results demonstrate that port authority’s goal is an important factor in determining optimal concession contracts.