Manufacturer's Revenue Research Articles

Retailer-Manufacturer Partnerships in E-Commerce: Dual Product Strategy and Market Share Dynamics

A new practice among online retail platforms, e.g., Amazon and Wayfair, is to offer their own private label product and a substitutable exclusive manufacturer product. We employ a game theoretic approach to examine conditions under which a retailer and a manufacturer find it optimal to enter into such a partnership. Our analysis reveals that a retailer finds it profitable to partner with a manufacturer with one of two profiles. The first is a manufacturer with low unit production and holding costs and large capacity, and the retailer gives the manufacturer most of the market share. In this case, the retailer uses a low private product price and marketing effort to pressure the manufacturer to set a low exclusive product price, which increases the manufacturer's revenue and the retailer's fees. The second is a manufacturer with a large consumer base, high unit production and holding costs, and small capacity. For this profile, the retailer takes most of the market share by offering a low private product price, and the manufacturer is unable to counteract the retailer's low private product price and marketing effort. The partnership results in a lower price when the marketing effort is costly and the retailer relies on private product price, intensifying price competition. Under some conditions, the retailer's profit may decrease in his share of the manufacturer's revenue. Also, the retailer may increase the marketing effort and decrease the private product price, not to take market share, but to pressure the manufacturer to decrease price.

Paid or Free? The Manufacturer's Revenue Strategy in Response to the Developer's Entry in Technology Platform Market

Platform-hardware business models bring an increasing popularity by integrating technology platforms designed by developers with suitable hardware devices produced by original equipment manufacturers (OEMs). This study examines an OEM's strategic choice of revenue models in response to a developer's entry threat when facing consumers with two-dimensional valuation for the product: the technology platform and the device. The OEM has two options of the revenue model: wholesale model in which the developer charges a wholesale price for each installation of the technology platform when the OEM does not preinstalls the developer's core services, and revenue sharing model in which the OEM freely accesses the technology platform after preinstalling the services, and the developer determines whether to enter the market, thus creating a coopetition with the OEM. We find that when the revenue sharing percentage is low or service margin is low, the OEM will choose the revenue sharing model and the developer will enter the market for a low entry cost. When the service margin is moderate, the OEM prefers the wholesale model. When the revenue sharing percentage and service margin are high, the OEM will choose between the two models depending on the developer's entry strategy. Specifically, the OEM will prefer the revenue sharing model when the developer enters but favor the wholesale model when the developer does not enter. In addition, the developer benefits from the OEM's choice of wholesale model but is harmed by the OEM's choice of revenue sharing model, regardless of entering the market or not. The extended cases of hardware device and technology platform compatibility and correlation, consumer's customization of core services preinstallation diversify the interplay between the OEM and developer, and verify the robustness of the basic model.

Trade-ins and Transaction Costs in the Market for Used Business Jets

Manufacturers of durable goods can encourage consumers facing transaction costs to upgrade by accepting used units as trade-ins. These “buyback schemes” increase demand for new units, but increase the supply of used units if trade-ins are resold. I investigate the equilibrium effects of buyback schemes in the market for business jets. I find that buyback increases manufacturer revenue by 7.2 percent at fixed prices. However, in equilibrium this revenue gain is diminished by 43 percent due to substitution away from new jets among first time buyers. I show how the size of this cannibalization effect depends on preference heterogeneity. (JEL D23, G34, L13, L62)

Manufacturer Revenue on Inhalers After Expiration of Primary Patents, 2000-2021

This study quantifies the revenue earned on all brand-name inhalers approved by the US Food and Drug Administration from 2000 to 2021 and compared earnings before and after expiration of primary patents on these products.

Parallel imports under a manufacturer rebate and a price freeze: Evidence from Germany.

I study the effect of a change in the mandatory manufacturer rebate and a price freeze on wholesale prices for pharmaceuticals on competition by parallel imports. First, I analyze the effect of a manufacturer rebate on competition by parallel imports in a two-country model. Second, I exploit a policy reform in Germany in 2010 that increased the manufacturer rebate by 10 percentage points. Using a data set with prescription drugs with competition from parallel imports, I estimate the effect of the change in the manufacturer rebate on competition by parallel imports. The model predicts that an increase in the manufacturer rebate increases the market share of parallel imports. The rebate decreases the manufacturer's revenues from domestic distribution. In response, the manufacturer lowers the wholesale price for a foreign distributor, resulting in a competitive advantage for and an increase in the market share of parallel imports. The estimation shows that the increase in the manufacturer rebate by 10 percentage points has increased the market share of parallel imports by approximately 18%-35% and has increased the number of importers by up to 17%.

The Payer License Agreement, or "Netflix model," for hepatitis C virus therapies enables universal treatment access, lowers costs and incentivizes innovation and competition.

Background and AimsHigh unit prices of treatments limit access. For epidemics like that of hepatitis C virus (HCV), reduced treatment access increases prevalence and incidence, making the infectious disease increasingly difficult to manage. The objective of the current study was to construct and test an alternative pricing model, the Payer License Agreement (PLA), and determine whether it could improve outcomes, cut costs and incentivize innovation versus the current unit‐based pricing model.MethodsWe built and used computational models of hepatitis C disease progression, treatment, and pricing in historical and future scenarios and quantitatively analyzed their economic and epidemiological impact in three high‐income countries.ResultsThis study had three key results regarding HCV treatment. First, if the PLA model had been implemented when interferon‐free direct‐acting antiviral (DAA) combinations launched, the number of patients treated and cured would have more than doubled in the first three years, while the liver‐related deaths (LRDs) would have decreased by around 40%. Second, if the PLA model had been implemented beginning in 2018, the year that several Netflix‐like payment models were under implementation, the number of treated and cured patients would nearly double, and the LRDs would decline by more than 55%. Third, implementing the PLA model would result in a decline in total payer costs of more than 25%, with an increase to pharmaceutical manufacturer revenues of 10%. These results were true across the three healthcare landscapes studied, the USA, the UK and Italy, and were robust against variations to critical model parameters through sensitivity analysis.Conclusions and RelevanceThese results suggest that implementation of the PLA model in high‐income countries across a variety of health system contexts would improve patient outcomes at lower payer cost with more stable revenue for pharmaceutical manufacturers. Health policy‐makers in high‐income countries should consider the PLA model for application to more cost‐effective management of HCV, and explore its application for other infectious diseases with curative therapies available now or soon.

Evolutionary Game Analysis of Capital-Constrained Supplier’s and Manufacturer’s Financing Schemes

Purchase order financing (POF) and buyer direct financing (BDF) are both innovative financing schemes aiming to help financial constrained suppliers secure financing for production. In this paper, we investigate the interaction mechanism between suppliers’ financing strategy selection and manufacturers’ loans offering strategy adoption under two innovative financing schemes. We developed an evolutionary game model to effectively investigate the interaction mechanism between suppliers and manufacturers and analyzed the evolutionary stable strategies of the game model. Then we used system dynamics to present the performance of the evolutionary game model and took a sensitivity analysis to verify the theoretical results. The main conclusions are as follows: in the supply chain, to deal with the noncooperation among suppliers and manufacturers on innovative financing schemes, the revenue of manufacturers, the rate of manufacturer loan, and the proper financial risk factor should be relatively high.

Supply chain partners' decisions with heterogeneous marketing efforts considering consumer's perception of quality

Consumers' perceived product quality reflects their psychological estimations on product quality, which directly affected by the real product quality provided by the manufacturer and the appearance of products from the retailer. Generally, consumer's willingness-to-pay is affected by their perceived quality. This study explores how consumers' perceived quality affects supply chain decisions with different supply chain structures. To conduct this study, demand function consisted of consumers' perceived quality is built. After that, the retailer and manufacturer's revenues models are formulated. Analytical solutions of supply chain partners, i.e., optimal product quality, wholesale price, packaging investment and retail price, are obtained with Stackelberg games. Investigation on the relations between supply chain circumstances and equilibrium decisions under different supply chain power structurers suggests some novel findings and managerial insights. For example, retailer's optimal product retail price negatively affected by market demand, manufacturer's optimal product quality is proportionate to retailer's packaging investment and vice versa.

Research on Coordination of Green Supply Chain Based on Blockchain Concept

Based on the concept of blockchain and Stackelberg game theory, the coordination problem of green supply chain under random environment is studied. Firstly, based on the concept of blockchain, green supply chain decision-making models composed of a manufacturer and a single retailer were constructed, in centralized, decentralized, revenue-sharing and green manufacturing cost sharing contract situations. Secondly, models were solved. Finally, the relevant conclusions are verified through simulation analysis and comparison. The study found that the revenue sharing ratio, green manufacturing cost sharing ratio and repurchase coefficient have a significant combined effect on supply chain coordination. When the green supply chain is coordinated, the overall revenue of manufacturers, retailers, and the supply chain under the blockchain concept is higher than that under the non-blockchain concept. Simultaneously, it improves product greenness, retailer’s ordering and the supply chain robustness.

Changes in PBM Business Practices in 2019: True Innovation or More of the Same?

In 2019, pharmacy benefit managers (PBMs) responded to intense public criticism with business model changes described as movements toward full transparency and innovation to reduce costs for benefit plan sponsors. We critically analyze these changes in light of key challenges in specialty drug management: pharmaceutical manufacturer practices (price increases driven by coverage mandates and lack of price control, intensive and sometimes misleading advertising, patent extensions), FDA changes (increased reliance on manufacturer funding, weakened evidentiary base for drug approvals), and provider prescribing patterns (lag from evidence to routine practice, manufacturer influences on the knowledge base, direct manufacturer payments to frequent prescribers). The persistence of controversial PBM practices suggests that business model changes were mostly cosmetic, without altering key marketplace dysfunctions. Examples include "spread" pricing, in which PBMs pay pharmacies less than employer-paid amounts; rebate-influenced formulary development; and shifting of prescription volume to PBM-owned pharmacies. Spread in Medicaid was estimated at $224.8 million in Ohio and $123.5 million in Kentucky in 1-year periods and is the subject of an ongoing federal investigation. Rebate influence on formulary development is suggested by slow biosimilar adoption and a study documenting little association between brand exclusions and clinical or cost-effectiveness. Even in 100% passthrough arrangements, the price differential between rebated products and lower-cost alternatives may far exceed revenues returned to the payer. Shifting of business to PBM-owned pharmacies was identified in Florida managed Medicaid in 2018, where the state's 5 largest specialty pharmacies, all owned by managed care organizations or PBMs, collected 28% of prescription drug profit despite dispensing only 0.4% of claims. Finally, contract provisions and terms typically limit the ability of plan sponsors to monitor PBM performance. These include "offsetting," changes in definitions (e.g., "single-source generic") during the contract term, restrictions on audit rights, and exclusion of some pharmaceutical manufacturer revenues from "100%" passthroughs. We conclude that ostensibly positive changes in PBM practices have been offset by undisclosed business arrangements, shifts to alternative revenue sources, and opaque contractual terms. Establishing and maintaining a sustainable benefit will require fundamental alterations to this dysfunctional market DISCLOSURES: This work was funded solely by Archimedes, with no external funding. Motheral is the CEO of Archimedes, a specialty drug management company, and EpiphanyRx, a PBM that provides alternatives to the business models described in this article. Fairman is a consultant to Archimedes.

The Benefits of Transaction-Level Data: The Case of Nielsen Scanner Data

This study uses Nielsen scanner data to illustrate the benefits of transaction-level data. Specifically, we explore whether granular consumer purchases contain incremental value-relevant information about the corresponding manufacturers. Using weekly consumer purchases data generated by point-of-sale systems from 2006 to 2018, which capture around $2 trillion of U.S. retail sales, we construct a measure of aggregated consumer purchases at the firm-quarter level, and find that it strongly predicts manufacturer revenues. In addition, analyst forecasts of revenues have predictable errors and revisions, which implies that analysts do not fully incorporate the information in consumer purchases in a timely manner. Exploring investment implications, we find that hedge portfolios that buy (sell) stocks of firms with high (low) abnormal consumer purchases generate annualized returns on the magnitude of 14% to 19% depending on specification. This return predictability holds after controlling for risk factors and firm characteristics, and is robust across time. Finally, about 36% of the quarterly hedge returns are concentrated over the three-day window around earnings announcements, which suggests that the returns result from the correction of biased expectations rather than risk. These findings suggest that consumer purchases convey useful insights into firm fundamentals, shedding light on the benefits of using transactional data for market participants.

Joint pricing and overbooking policy in a full payment presale mechanism of new products

AbstractThis paper investigates a full payment presale mechanism of new products, in which consumers make a full payment while booking and are allowed to cancel their bookings with full refunds before the products’ delivery time. To fully utilize the limited capacity, the manufacturer can incorporate the overbooking policy into the full payment presale mechanism by jointly setting its sales price and booking limit. We analyze the manufacturer's revenue maximization problem and develop some useful properties. In addition, we propose an iterative algorithm for solving this problem. Finally, we conduct numerical computations to evaluate the overbooking policy and examine the impacts of relevant parameters on the expected profits. We find that the overbooking policy will benefit the manufacturer. However, a higher capacity will not necessarily lead to a higher profit for a manufacturer with an overbooking policy.

Forecasting financial impact of alternative payment models to cancer drug manufacturers.

6549 Background: Payers are moving from fee-for-service (FFS) reimbursement models towards value-based Alternative Payment Models (APMs). In Medicare, this trend has emerged via MACRA legislation and the Oncology Care Model (OCM). Reimbursement changes carry financial implications for payers, providers, and drug manufacturers. Methods: Financial impact of APMs was modeled as a function of Volume Factors and Price Factors in sales of a cancer drug product. Volume Factors included utilization patterns and market share. Price Factors included launch price, price increases, and both mandated and negotiated discounts. The model described three APM categories: Buy & Bill Plus (similar to OCM), Episode-Based Payment, and Third-Party Buy & Bill. The model included assumed timelines of APM implementation and the share of commercial insurer and Medicare markets implementing. Assumptions were generated in a multi-stakeholder workshop applying a modified Delphi method and Nominal Group Technique to arrive at consensus. The model included input ability for existing product forecast data including expected patient numbers, market share, payer mix, channel mix, price, 340B discount parameters, and additional concessions. Combinations of inputs and assumptions were run through the model as scenarios to generate results. Results: Across all scenarios, Episode-Based Payment resulted in revenues averaging 34% below baseline forecast at the ten-year mark. Third-Party Buy and Bill resulted in revenues averaging 100% of baseline at the ten-year mark. Buy and Bill Plus resulted in revenues averaging 66% below baseline at the ten-year mark. Market share as a function of clinical differentiation appeared to be a significant factor influencing revenue impact, with highly differentiated products outperforming others in all APMs. Conclusions: While much attention is paid to the impact of reimbursement reform on oncology provider economics, with subsequent impacts to patient access, less attention has been focused on impact to drug manufacturers. APM implementation could significantly impact manufacturer revenues, which in turn may impact both access to such therapies and research investment towards new anti-cancer therapies.

Reconsidering the Economic Value of Therapies for Multiple Sclerosis in the United States: Who Derives Benefit from Medical Technology?

Aims: (1) To illustrate a more comprehensive view of value associated with medicines treating highly severe illness. (2) To apply these insights to estimate the costs and benefits of three treatments for Multiple Sclerosis (MS): Avonex, Tysabri, and Tecfidera. Materials and Methods: Retrospective study spanning 2002-2013. We use economic theory to derive the value of therapy to those with and without MS, under the alternative assumptions that therapies were fully insured or paid for out of pocket. Models were parameterized through secondary data analysis and targeted literature review. Estimates of individual value were aggregated to the societal level using therapy-specific treatment prevalence rates. Aggregate consumer value was compared to manufacturer revenue. Results: In the baseline model, Avonex, Tysabri, and Tecfidera generated $46.2BN of total value to consumers, almost one-third of which accrued to those without MS. Total value to consumers was double manufacturer revenue. Results were qualitatively robust to the use of alternate epidemiological and economic parameters. We find that value to the healthy is positively related to disease severity, and that value to both the sick and the healthy are larger when costs are shared via health insurance. Conclusions: Theory predicts that treatments for severe disease provide “peace of mind” value to the healthy. Avonex, Tysabri, and Tecfidera have generated significant social value, a large majority of which accrues to consumers. Future economic valuations of medical technology should consider both the potential value to the healthy and the effects of insurance.

LSP-Constrained Supply Chains: A Discrete Event Simulation Model

In this paper, we present a logistics service provider (LSP) constrained supply chain problem, particularly; we propose a novel supply chain model that consists of three layers of non-cooperative manufacturers, distribution centers and retailers. Products flow from the manufacturers across different warehouses to retailers via LSP. Inventories at warehouses follow smooth and continuous replenishment policy, i.e. , perpetual review. The supply chain is represented as an optimization model that maximizes the revenue of manufacturers meets the retailers’ demand and at the same time identifies the necessary warehouses, particularly for supply chains that are affected by leadtime (LT) variation such as fast response industry and short life products. The model solution is adaptive; it determines the best manufacturing rates and identifies the logistic bottlenecks in dynamic supply chain networks. Numerical solutions along with simulation experiments of different supply chain topologies are presented. The simulation results demonstrate the model capability to maximize the revenues by tuning the manufacturing rates and monitoring the workinprocess, products in transit as well as products in inventories

Multicategory Design of Bundled Products for Retail Channels Under Uncertainty and Competition

One prevalent approach to increase both retailer and manufacturer revenues are to improve the attractiveness of a product offering by bundling related product categories together for one price. To be most effective, bundled products should be developed with an integrated design approach that seeks to achieve utility for the end customer. We propose a bundled product design approach that endogenizes demand dependencies between the product categories and thus determines the impact of the bundle and cross-category competition on proposed engineering designs. Additionally, the approach simultaneously considers uncertainty in engineering design, competing manufacturer product attributes, and customer preferences to ensure acceptable product profitability and market share under interval uncertainty. We find after optimizing manufacturer profit and market share that considering demand dependencies can lead to optimal bundle and individual product designs that increase profits for both retailer and manufacturer.

A CONTINUOUS REVIEW INVENTORY MODEL WITH STOCHASTIC PRICES PROCURED IN THE SPOT MARKET

Not only the amount of product demanded, but also the price of the product have a strong impact on a manufacturer's revenue. In this paper we consider a continuous-time inventory model where the spot price of the product stochastically fluctuates according to a Brownian motion. Should information on the spot price be available, the manufacturer would wish to buy the product on the spot market when profitable. The purpose of this paper is to find an optimal procurement policy so as to minimize total expected discounted costs over an infinite planning horizon. We extend the Sulem (1986) model into one in which the market price of the product follows a geometric Brownian motion. By applying this, we obtain the optimal cost as a solution to a quasi-variational inequality, and show that there exists an optimal procurement solution as an (s,S) policy. We clarify the dependence of the optimal (s,S) policy on the spot price at the procurement epoch. These values of the (s,S) policy can be used and revised in the following ordering cycles. Finally, some numerical examples are provided to investigate the analytical properties of the expected cost function as well as of the optimal policy.

Maintenance outsourcing of a multi-process manufacturing system with multiple contractors

Consider a manufacturer with a manufacturing system that consists of multiple processes. The manufacturer's revenue is determined by the minimum of the uptimes among the processes. The maintenance functions of the processes are outsourced to independent contractors so that each contractor is responsible only for one process. A performance-based incentive contract is offered to each contractor, consisting of an uptime target level and a bonus rate for exceeding the uptime target. Under the incentive contract, a contractor receives a bonus only when the achieved uptime exceeds the target level specified in the contract. We develop a model for jointly determining the uptime target levels and bonus rates for the contractors which maximize system profit. We also demonstrate the financial benefits of coordination and added flexibility in allocating the additional profit to the contractors. In addition we show the impact of the variation in individual process maintenance times and costs on channel coordination and profits.

Do Promotions Benefit Manufacturers, Retailers, or Both?

Do price promotions generate additional revenue and for whom? Which brand, category, and market conditions influence promotional benefits and their allocation across manufacturers and retailers? To answer these questions, we conduct a large-scale econometric investigation of the effects of price promotions on manufacturer revenues, retailer revenues, and total profits (margins). A first major finding is that a price promotion typically does not have permanent monetary effects for either party. Second, price promotions have a predominantly positive impact on manufacturer revenues, but their effects on retailer revenues are mixed. Moreover, retailer category margins are typically reduced by price promotions. Even when accounting for cross-category and store-traffic effects, we still find evidence that price promotions are typically not beneficial to the retailer. Third, our results indicate that manufacturer revenue elasticities are higher for promotions of small-share brands, for frequently promoted brands and for national brands in impulse product categories with a low degree of brand proliferation and low private-label shares. Retailer revenue elasticities are higher for brands with frequent and shallow promotions, for impulse products, and in categories with a low degree of brand proliferation. Finally, retailer margin elasticities are higher for promotions of small-share brands and for brands with infrequent and shallow promotions. We discuss the managerial implications of our results for both manufacturers and retailers.

Rebates, inventories, and intertemporal price discrimination

We demonstrate that universally redeemed rebates can increase manufacturer profits by reducing the incentives of downstream retailers to hoard inventories when optimal wholesale prices vary predictably over time. By bypassing retailers and making direct contracts with buyers, the manufacturer can increase the variations in effective prices paid by consumers without concomitantly creating larger incentives for retailers to hold inventories. During profitable, high‐demand periods, manufacturer revenues are ordinarily constrained by‘competition’from retailer inventories, thus limiting profits. However, by selectively offering rebates to consumers while maintaining high wholesale prices, low‐demand periods can be accommodated without inducing retailer hoarding.