Lump-sum Fee Research Articles

Game-theoretic analysis of a two-stage dual-channel supply chain coordination in the presence of market segmentation and price discounts

Advance selling can lock in consumers and cannibalize discount-sensitive consumers from the regular selling stage, which has become a common strategy for manufacturer-led dual-channel supply chains. Consumers order or purchase goods in two stages including advance selling and regular selling, based on their offline and online market segmentations. This study employs a Stackelberg game approach to characterize centralized and decentralized models considering market segmentation and price discounts. We find that the manufacturer can obtain maximum equilibrium profit in advance selling by indirectly and purposefully guiding lock-in consumers in regular selling to purchase goods through the offline market, and subsequently can avoid minimum equilibrium profit in regular selling by directly and purposefully guiding lock-in consumers in regular selling to purchase goods through the offline market. However, the retailer can obtain the maximum equilibrium profits in both stages. Furthermore, for exogenous price discounts, the manufacturer and retailer formulate pricing strategies that adhere to existing market rules. For endogenous price discounts, pursuing a low price-discount strategy should be avoided. Cooperation between both players can always generate more profits under regular selling, but not under advance selling. A two-part tariff contract is proposed to achieve cooperation. The results show that by adjusting a lump-sum fee, players can smoothly implement the two-part tariff contract. Three extensions demonstrate that cannibalizing discount-sensitive consumers does not always result in higher profits for the manufacturer or retailer.

Foreign Eco-Technology Licensing Strategy and the Coordination of Import Tariff and Emission Tax Policies

This study investigates eco-technology licensing strategy by a foreign firm that offers two-part tariff licensing contracts (i.e. combination of a per unit royalty and a lump-sum fee) to a domestic polluting firm under the strategic import tariff in the presence of an exogeneous emission tax. We particularly consider the possibility of negative royalty (or subsidised royalty per unit production) by the foreign licensor and compare the two different licensing cases with and without non-negative royalty. We find that given a lower level of emission tax, the licensor may choose negative royalty only when the import tariff is high. We also find that the optimal import tariff with non-restrictive licensing contract with a negative royalty is higher than that with restrictive one, but allowing a negative royalty is better for domestic welfare unless the emission tax is so high (or environmental damage is serious). Finally, we show find that the optimal import tariff under the two-part tariff licensing might have a negative relationship with an emissions tax.

Content-distribution strategies in markets with locked-in customers

We study how the presence of locked-in customers in a downstream market affects the distribution choice of an upstream content provider. Two asymmetric distributors compete in a mature market and the content provider sells its rights using lump-sum fees. A higher number of locked-in customers reduces the need to resort to exclusivity to relax downstream competition. The content provider therefore sells its rights to both distributors when there is a sufficiently-high proportion of locked-in customers. We show that an exclusive affiliation with the smaller rather than the larger distributor facilitates distributors’ rent-extraction, in particular for low-quality content. When there are few locked-in customers, the content provider sells low-quality content to the smaller distributor and high-quality content to the larger distributor. Our results suggest that competition authorities should cautiously evaluate the effects of lower switching costs on consumer welfare. By encouraging exclusive distribution, a lower proportion of locked-in customers may reduce consumer welfare.

The welfare effect of bargaining power in the licensing of a cost-reducing technology

This study considers licensing of a cost-reducing technology through bargaining between a technology-holding firm and its rival firm in a Cournot duopoly market. To consider the relative bargaining power of both firms, the asymmetric Nash bargaining solution is applied as our solution. Then, we specify the combinations of lump-sum fee and per-unit royalty that are realized through bargaining, and examine the effect on social welfare of the technology-holding firm’s bargaining power. The principal findings are as follows. Regardless of the technology-holding firm’s bargaining power, pure royalty licensing is carried out, and social welfare is non-increasing in its bargaining power. In our model, licensing through a take-it-or-leave-it offer, which is often assumed in the literature, is regarded as the case in which the technology-holding firm has full bargaining power. Thus, the result on social welfare implies that the take-it-or-leave-it offer licensing mechanism leads to the socially worst outcome.

Pricing and Service Strategies for Two-sided Platforms

Nowadays, more and more transactions or interactions like online dating and shopping are completed on two-sided platforms involving two groups of agents. On these two-sided platforms, there often exist cross-network effects, i.e., the benefits that agents at one side receive are positively related to the number of agents at the other side, and vice versa. This paper considers such two-sided platforms, where the platforms offer a certain service to attract agents of both sides to join the platforms, and then charge agents who join the platforms a lump-sum fee to gain the profit. We present service and pricing strategies for both monopolistic and duopolistic platforms, respectively. We also investigate the impact of platforms’ life cycle on their service and pricing strategies. Some managerial implications are shown.

Competition for Content in Distribution Markets With Locked-in Customers

We study competition for content rights in the presence of locked-in customers in the distribution market. The literature shows that when the content provider's revenue stems only from the lump-sum fee(s) collected from the distributors, the content provider never multihomes. We show that this result does not hold if the mass of locked-in customers in the distribution market is sufficiently high. When exclusivity occurs, the content provider sells high quality content to the larger distributor and low quality content to the smaller distributor (as long as the market split is not too asymmetric). Finally, we show that competition over content access can reduce the value of having a large customer base and therefore distributors do not necessarily benefit from a large customer base.

Prediction and Learning About Credit Card Spending

Firms often offer contracts that vary by fee structures, hoping to differentiate among types of consumers. Such contracts require that consumers make estimates of their own future behavior to choose among service contracts whose prices condition on usage. We study the contract choices and service usage of credit card consumers with a choice between two possible fee structures: a card with an upfront lump-sum fee without spending requirement, and a card with an annual fee which can be waived each year if a minimum amount is charged to the card. Using panel data of over 16,000 credit card accounts, including contract choice and subsequent monthly account usage, we examine the extent to which consumers accurately predict their own credit card usage in their contract choice, and whether and how they learn from their experiences with ex-post ‘mistakes’. Compared the prior literature on fixed fee versus use-based fee contract selection, we find consumer reliance on forward-looking incentives rather than an intrinsic appeal of payment schemes with single upfront payments. Following errors made in the first year of membership, consumers showed evidence of learning according to their future monetary incentives. However, card attrition rather than spending adjustment, was the preferred margin for adjustment in the aggregate, showing an overall unwillingness of consumers to change their product usage on the intrinsic margin in response to financial penalties. We also examine the relationship between contract choice, education and financial health indicators. Consumers with lower education levels had a greater tendency towards contract selection errors, while there is a positive relationship between contract errors and negative indicators of financial health such as months of rolling debt, installment plan participation, and cash advance withdrawals. This suggests that even while the stakes are only small to moderate, contract choice errors are more generally indicative of consumers’ financial planning difficulties.

Stable Licensing Schemes in Technology Transfer

We consider stable licensing schemes that are combinations of lump-sum fee and per-unit royalty realized as bargaining outcomes in transferring a new technology from a technology holder to oligopolistic firms through licensing. The licensing schemes on which the technology holder and licensees can agree are necessarily rejection-proof; that is, no subgroup of licensees has an incentive to reject the licensing schemes. We define the rejection-proof core for each group of licensees as the set of rejection-proof licensing schemes for its group that are not dominated by any other rejection-proof licensing schemes for any licensees' group. Our findings are as follows: For the group of licensees that maximizes the sum of the technology holder's (gross) profit and licensees' total surplus, the rejection-proof core is always non-empty. Further, the non-empty rejection-proof cores suggest that it should be optimal for the technology holder to license the new technology to such a group from the viewpoint of his/her profit maximization.

Endogenous Choice on Advertising Pricing of Media Platforms: Lump-Sum Fee vs. Proportional Fee

Media platforms usually generate revenues from consumers through a subscription fee, but face the choice between lump-sum fees and proportional fees when they charge advertisers. This paper builds a two-stage dynamic game to solve an endogenous choice problem with regard to the advertising pricing instruments of two platforms competing for single-homing consumers and advertisers. If platforms can switch freely between different price instruments, the dominant strategy is that both platforms charge advertisers a proportional fee, from which more profits are generated. If one platform finds it technically infeasible to adopt proportional fee so that it has to charge a lump-sum advertising fee, the rival platform can gain an advantage in terms of both market shares and profits by charging one group a lump-sum fee and the other a proportional fee, but the comparison between the two platforms’ advertising prices is ambiguous.

User-Initiated Data Plan Trading via a Personal Hotspot Market

Mobile data services are becoming the main driver of a wireless service provider’s (WSPs) revenue growth, and two-part tariff data plans (each including a lump-sum fee and a per-unit charge) are usually provided to wireless users. Some users can easily use up their monthly data quota and may pay for costly data over-usage. Motivated by users’ diverse usage behavior (more or less than the subscribed data quotas), this paper proposes a new type of user-initiated network for cellular users to trade data plans by leveraging personal hotspots (PHs) with users’ smartphones. A user with data surplus can set up a PH and share the cellular data connection to another user with data deficit in the vicinity. Due to users’ randomness in data usage, incentive to trade, and user mobility to enter or leave the PH connection range, the analysis on the secondary trading market is challenging. To overcome these issues, we propose a PH-market for users with diverse data usage behaviors and random user mobility to directly trade data as sellers and buyers, by designing a market-clearing price. It is shown that the PH-market greatly saves all users’ expected costs when the existence condition of the PH-market is met. Finally, as this PH-market will challenge the WSP’s revenue collection (especially the surcharge from users’ data over-usage), we analyze the WSP’s response to the PH-market and propose two effective countermeasure strategies by either reducing the selling users’ data quota in their data plans (the PH-market’s supply) or increasing the buying users’ data quota (the PH-market’s demand). When we have more than one WSP and they are competitive, we show that one WSP can take advantage of the PH-market by indirectly selling more data to the other WSP’s users.

Willingness to pay and the sensitivity of willingness to pay for interdisciplinary musculoskeletal clinics: a contingent valuation study in Quebec, Canada.

Orthopedics is a discipline that requires a continuum of care in close collaboration with physicians, nurses, and healthcare professionals to ensure effective rehabilitation. In some cases, the wait time for a consultation may be very long, which can jeopardize the patient's rehabilitation and sometimes even cause complications that lead to a loss of autonomy. In Quebec, there is a severe shortage of healthcare professionals-and of orthopedic surgeons, in particular-specializing in musculoskeletal problems. To address this problem, public managers have decided to establish interdisciplinary musculoskeletal clinics in regions outside the two major cities of Montréal and Québec. The major benefits of these clinics are that they reduce the wait time for consultation and treatment while maintaining service quality. Although their benefits are certain, these clinics remain threatened by relatively high initial costs. This study's objective is to evaluate whether the population of Quebec has a quantifiable willingness to pay (WTP) to establish these clinics. To our knowledge, this is the first study of its kind either in the province of Quebec or elsewhere. We selected 3822 subjects randomly within the target population using Internet surveys, telephone surveys and self-administered paper surveys as our methods of recruitment. Three payment vehicles were used and each participant was randomly allocated among these: tax, donation or lump-sum fee. A contingent valuation question using a referendum format with the option "don't know" was used. Econometric estimates were performed using probit and Wang's models. Our results indicate that the population of Quebec may potentially have a mean WTP of 42.3 Canadian dollars per person for such clinics, which would enable a mean reduction from 12 to 4 months of wait time. However, the WTP is found to be very sensitive to the survey mode and the payment vehicle used: about 1.2-2 times more important in the tax and the lump-sum fee scenarios than in the donation scenario, and about 3-4 times less important in the Internet survey than in the telephone or self-administered paper surveys. In addition, this amount was strongly affected by the introduction of a new governmental health-related policy that arose during the survey and led to a minimal drop in WTP of about 30-50%. This strong sensitivity led us to the three following recommendations for future contingent valuation studies: (1) favour Internet surveys, (2) use a payment vehicle that limit uncertainty in the WTP answer and allow to socialize benefits, as the tax scenario in our study, and (3) strictly apply the "divide by 2" rule of the NOAA panel.

Regulating Cournot Oligopoly with Environmental Externalities

We construct a model to analyze an oligopoly with two types of technology that produce an undifferentiated product: a cleaner but more expensive technology and a dirtier but less expensive technology. We construct a two-stage model in which firms choose their technology in the first stage and their profit maximizing quantities in the second stage. We then introduce stage zero, in which the government chooses its policy: a lump-sum fee, a specific tax, a subsidy, or a permit to label the product produced with the cleaner technology. We show that the government can achieve the highest social welfare with eco-labeling when most of the consumers are eco-conscious. Otherwise a subsidy or a tax achieves the highest social welfare depending on the degree of environmental damage.

On budget balance of the dynamic pivot mechanism

We modify the dynamic pivot mechanism of Bergemann and Välimäki (Econometrica, 2010) in such a way that lump-sum fees are collected from the players. We show that the modified mechanism satisfies ex-ante budget balance as well as ex-post efficiency, periodic ex-post incentive compatibility, and periodic ex-post individual rationality, as long as the Markov chain representing the evolution of players' private information is irreducible and aperiodic and players are sufficiently patient. We also show that the diverse preference assumption of Bergemann and Välimäki may preclude budget balance.

Supply chain coordination via a two-part tariff contract with price and sales effort dependent demand

Article history: Received March 15, 2014 Accepted September 6, 2014 Available online September 9 2014 This paper studies the channel coordination between a supplier and a retailer with price and sales effort dependent demand. By means of game theory, we analyze price and sales effort decisions of the centralized supply chain. Then we consider three different contracts under decentralized model, i.e., wholesale price contract, cost-sharing contract and a two-part tariff contract, in which the supplier offers a contract comprising a wholesale price and a lump-sum fee to the retailer to coordinate the supply chain. Finally, we analyze the results to compare the equilibrium decisions under different contract scenarios. Our results show that both the wholesale price contract and the cost-sharing contract cannot coordinate the supply chain while the two-part tariff contract can effectively coordinate the supply chain. © 2015 Growing Science Ltd. All rights reserved.

Coordination of a dual-channel supply chain after demand or production cost disruptions

Coordinating a dual-channel supply chain could not only achieve the integrated profit of the supply chain but also alleviate the channel conflict. Although some researches addressed this area, there is scant literature to discuss the coordination issue in the situations of disruption. To fill this void, we utilise a contract with a wholesale price, a direct channel’s price and a lump sum fee to coordinate a dual-channel supply chain under the cases of demand disruptions and production cost disruptions. After deriving the optimal contract for each case, we find that the manufacturer can achieve coordination of the disrupted supply chain by adjusting the parameters of the coordination contract used in a normal environment. We also show that after disruptions, there exists a contract adjustment benefit zone, in which both the manufacturer and the retailer can benefit from the adjustment of coordination contract when demand increases or production cost decreases. A further analysis of the production and distribution strategies in the coordinated dual-channel supply chain after disruptions suggests that the adjustment of the total production and sales of each channel depends heavily on the level of disruptions and the degree of consumers’ loyalty to both channels.

Research on the Fresh Agricultural Product Supply Chain Coordination with Supply Disruptions

This paper develops a dynamic model in a one-supplier-one-retailer fresh agricultural product supply chain that experiences supply disruptions during the planning horizon. The optimal solutions in the centralized and decentralized supply chains are studied. It is found that the retailer’s optimal order quantity and the maximum total supply chain profit in the decentralized supply chain with wholesale price contract are less than that in the centralized supply chain. A two-part tariff contract is proposed to coordinate the decentralized supply chain with which the maximum profit can be achieved. It is found that the optimal wholesale price should be a decreasing piecewise function of the final output. To ensure that the supplier and the retailer both have incentives to accept the coordination contract, a lump-sum fee is offered. The interval of lump-sum fee is given leaving both the supplier and the retailer better off with the two-part tariff contract.

EVALUATION OF DESIGN-BID-BUILD (D-B-B) PROJECTS WITH AND WITHOUT AGENCY CONSTRUCTION MANAGEMENT

Agency CM is a construction management system, and is a way to manage the process of construction. Agency Construction Management when paid on hourly Fee tempts to work hours that are not needed to maximize fee. When Agency CM is paid by Lump sum Fee or remunerated by a percentage of the Project Cost, Agency CM is only committed to provide defined services and results for a lump sum Fee. So the Agency CM may be tempted to provide less service than what was contracted for to increase profits and may maximize profits by cutting corners on services at risk of not obtaining expected results. Hence there is a need for the owner to understand whether there is improvement in Project Performance when Agency CM is contracted with any Project Delivery System. Design-Bid-Build (D-B-B), Design-Build (D-B), and Construction Management at risk (CM at - Risk) are the three principal project delivery systems. Agency CM can be used with any type of Project Delivery System. This necessitates a comprehensive investigation in to the performance of projects delivered with Agency CM and projects delivered without Agency CM. This study evaluated the project performance metrics such as Project Cost, Project Schedule and Project quality in Projects where Design-Build (D-B-B) Project Delivery System was used with Agency CM and Projects where Design-Bid-Build Project Delivery System was used without Agency CM. The study included literature review, designing a questionnaire, collecting data from 200 Design –Bid-Build (D-B-B) projects of which 100 projects where Agency CM was used and 100 projects where Agency CM was not used. Analysis of data pertaining to project performance metrics was done by using SPSS statistical software. An understanding of this study can help an owner/client better select the D-B-B project delivery system either with or without Agency Construction management.

Moral hazard problem for poor under joint forest management programme evidence from West Bengal in Indian context

This study explores policy framework on current JFM programme, which secures traditional right of local need subject to the carrying capacity of forest, but face moral hazard problem in which Government cannot legally monitor actions against JFM householdswhich live below poverty line and that extract TFPs for their livelihood, and thereby threatening to sustainability of forest, whereas the incentive work opportunities that Government provides them is insufficient for their subsistence. A good incentive fee dependent on their work plus a lump sum fee (subsidy) are required for their livelihood sustenance and sustainability of forest resources.

Practical and effective contracts for the dominant retailer of a newsvendor product with price-sensitive demand

Abstract A manufacturer supplies a newsvendor product to a dominant retailer, who does not know the manufacturer's unit production cost k . The expected retail demand is a function of the unit retail price p . For this increasingly prevalent but rarely analyzed scenario, we compare the performance of several promising contract formats, including two new contract formats designed explicitly for a dominant retailer to implement, namely: (i) a retailer-implemented two-part tariffs where the retailer charges an upfront lump sum fee besides a fixed percentage markup over any given unit wholesale price, and (ii) a retailer-implemented volume discount scheme. We show that these two new formats perform substantially better than the currently-used practical formats. Thus, they form a basis for a dominant retailer to design a practical and effective purchase contract that approaches the power of the theoretically-optimal but impractical “menu of contracts.”

Royalties vs. upfront lump-sum fees in data communication environments

Mobile communications markets worldwide, today, are saturated, the number of mobile network operators (MNOs) in market is declining, mobile revenues are stagnant or falling, MNOs are becoming wireless Internet service providers, and economies of scope are strengthening. This paper challenges existing dominant views on spectrum assignment and license fee payments, estimates spectrum fees that MNOs would have paid under royalties and then compares them with upfront lump-sum fees actually paid by 3G licensees. This paper further proposes that governments need to consider assigning additional spectrum to incumbents as needs arise without using auctions and adopting royalties as a way of collecting spectrum fees should they collect them.