Retailer Orders Research Articles

Competition for Retail Order Flow and Market Quality

Competition for Retail Order Flow and Market Quality

The Information Content of Retail Order Flow: Evidence from Fragmented Markets

The Information Content of Retail Order Flow: Evidence from Fragmented Markets

The role of government regulatory policies in financing capital-constrained retailers under competition

Governments in many different countries have implemented regulatory policies (such as tax reduction and subsidy provision) to support the development and operation of capital-constrained small and medium-sized enterprises (SMEs) that may compete each other in practice. To better understand the impacts of government regulatory policies on capital-constrained SMEs, bank, consumers and social welfare, this paper develops a Cournot competition model consisting of two competing and capital-constrained retailers in a market with demand uncertainty. We obtain the optimal procurement decisions of two retailers and the optimal loan interest decision of the bank completely, and compare the effects of two government supporting policies (i.e., tax reduction and subsidy provision) in a Nash game of the two retailers. We show that the difference of the two retailers’ procurement costs closely affects the procurement decision of the retailer who possesses the cost advantage, and that this retailer orders more under government regulatory policies than without government regulation, if the procurement costs of two retailers are relatively balanced. In addition, tax reduction can improve the profits of the retailers engaged in the competitive market when the gap of their procurement costs is small relatively, whereas the subsidy provision can always improve the profit of the retailer who does not possess a procurement cost advantage. The bank is incentivized to lower its interest rate to both retailers under tax reduction; under the subsidy provision, the opposite result is true. Our finding can demonstrate that there exists a win–win–win situation for the two retailers, the consumers as well as for the society in the case of bank financing with government tax reduction/subsidy provision. The numerical studies show that the improvement of social welfare is more significant in the case of subsidy provision than that in the case of tax reduction.

Mixed financing scheme in a capital‐constrained supply chain: bank credit and e‐commerce platform financing

AbstractThis paper studies a three‐echelon supply chain consisting of a commercial bank, an e‐commerce platform, and a capital‐constrained online retailer. Due to limited creditworthiness, the retailer can only obtain a restricted bank loan, while the remaining needs to resort to the e‐commerce platform to fund its business. We formulate a three‐echelon Stackelberg game in which the bank is a leader, the e‐commerce platform is a subleader, and the retailer is a follower. We analytically derive the optimal interest rates of the bank and the e‐commerce platform and the optimal order quantity of the retailer. Compared with the nonfinancing case, we characterize the regions of the interest rates charged by the bank and the e‐commerce platform under which Pareto improvement can be achieved. We also present the retailer's financing preference under equilibrium and show how the initial capital affects the retailer's financing selection. Numerical examples demonstrate that the retailer's order quantity and expected profit increase with the bank's loan ratio.

Manufacturer–retailer supply chain model with payment time-dependent discount factor under two-level trade credit

It is usually observed in the marketplace that, for longer delayed payment, both the sales volume and the loss of interest in terms of opportunity cost turn up higher. On the other hand, for longer advanced payment, the sales volume appears lower but the earned interest appears higher. To balance between delayed and advanced payments, a discount factor that changes the wholesale price for different payment-term scenarios comes into play. In this paper, a single-manufacturer and a single-retailer supply chain model is developed where the manufacturer adopts a lot-for-lot policy for delivering the retailer's order quantity. The retailer offers a flexible payment time to customers. The market demand is assumed to be linearly dependent on the selling price. The discount factor which makes the difference between the two wholesale prices is taken as a function of payment time. The impact of advanced and delayed payments on the optimal payment time is discussed and analysed in a retailer-Stackelberg game structure. A numerical example is taken to exhibit the optimal results and perform sensitivity analysis.

Remanufacturing for Circular Economy: Understanding the Impact of Manufacturer’s Incentive under Price Competition

Business organizations all around the globe are looking to expand circular models into their supply chains to harness economic and environmental benefits. Moreover, the act of giving incentives to retailers by the manufacturer is also quite prevalent in the present business environment. These incentives are offered to promote the sales of products of a manufacturer. Therefore, this paper examines the optimal decisions for a dual-retailer closed-loop supply chain (CLSC) in which the manufacturer bestows the credit period to the one retailer (a firm that possesses shallow market penetration and has a higher insistence on the usage of the capital venture), and cash discount to the next retailer (a firm that occupies the market to a greater extent and receives lower thrust on the usage of invested capital) under a non-coordinated system and coordinated systems. This study proposes the mathematical model to determine the optimal decisions of the manufacturer in terms of credit period and cash discount and also compute the optimal decisions of the retailers for their retail prices and order quantities to maximize individual’s profit in the CLSC. Moreover, numerical analysis and sensitivity analysis is performed to get insights into the optimal decisions of the manufacturer and retailers. The results of sensitivity analysis show that credit period and cash discount increases with the rise in price elasticity, and decreases with an increase in cross-price elasticity. The findings also confirm that members of dual-retailer CLSC under coordination and manufacture’s incentive scenario generate higher environmental and economic benefits required to attain sustainability in production and consumption.

An inventory system with coordination among manufacturers and retailers under buyback contract, vertical integration, retailer’s effort and carbon footprint constraint

ABSTRACT The growing concerns about the Earth’s climate system and the increasing importance of saving raw materials are critical challenges that supply chain members mostly face, leading companies to sustainability and ‘going green’ missions. Environmentally friendly inventory management is one of the most crucial and key decisions that creates innovative methodologies to achieve green growth. Hence, in this study, we analyse a newsvendor problem among manufacturers and retailers under random demand to facilitate sustainable and green growth approaches. In our analytical model, two ways are considered to meet the needs of retailers. In the first case, the retailer orders before the sales season, so the remanufacturer will have enough time to remanufacture returned products and provide the retailer’s needs with recycled materials. In the second case, the retailer will re-order after the start of the sales season in the face of a shortage. So, the remanufacturer will not have enough time to supply the retailer with returned materials, and the retailer’s order will be met with new products using raw materials. The model intends to study the effects of carbon footprint constraints, vertical integration, buyback contract, and retailer’s sales effort on inventory control systems with remanufacturers. Furthermore, sensitivity analysis is performed, and conclusions and future research directions are provided.

The democratization of investment research and the informativeness of retail investor trading

We study the effects of social media on the informativeness of retail trading. Our identification strategy exploits the editorial delay between report submission and publication on Seeking Alpha, a popular crowdsourced investment research platform. We find the ability of retail order imbalances to predict the cross-section of stock returns and cash-flow news increases sharply in the intraday post-publication window relative to the pre-publication window. The findings are robust to controlling for report tone and stronger for reports authored by more capable contributors. The evidence suggests that recent technology-enabled innovations in how individuals share information help retail investors become better informed.

Liquidity Provision and the Cross-Section of Night-minus-day Stock Returns

We propose a one-factor model for expected night-minus-day (NMD) returns and use it to examine the economic forces underlying NMD return predictabilities. Our model successfully prices a large set of NMD portfolios with a cross-sectional R2 around 80%. Consistent with the absence of near-arbitrage opportunities, the pricing factor has substantial exposure to the dominant common risks in the NMD return space. Finally, we link the pricing factor to retail order imbalances at the market open and the required returns from liquidity provision. Our findings point to a pricing equilibrium in which liquidity providers require compensation for accommodating sentiment-driven demand.

Financing decisions in a supply chain when considering product returns

AbstractAs more and more products are sold, the management of product returns plays a significant role in firms' operational decisions. We consider a capital‐constrained newsvendor model to explore the impact of product returns on firms' operational and financial decisions, in which a capital‐constrained retailer can get financed from either banks or suppliers and refurbish returned products and resell them to customers. Our findings show that offering refurbishment for returned products can increase the retailer's order quantity and improve the capital‐constrained supply chain performance. Moreover, the supplier strategically designs the wholesale price to hinder the retailer refurbishing returned products although the retailer always chooses to provide refurbishment under trade credit. When only trade credit financing is available, there exists a Pareto improvement on both partners' profits under certain cases. In addition, we investigate the financing preferences of the supply chain and find that product returns have a significant influence on the unique financing equilibrium. Finally, we conduct numerical analyses to present the impacts of some key parameters on the performance of both supply chain members.

What should be lean buffer threshold for the forward-reserve warehouse?

PurposeThe assorted piece-wise retail orders in a cosmetics warehouse are fulfilled through a separate fast-picking area called Forward Buffer (FB). This study determines “just-right” size of FB to ensure desired Customer Service Level (CSL) at least storage wastages. It also investigates the impact of FB capacity and demand variations on FB leanness.Design/methodology/approachA Value Stream Mapping (VSM) tool is applied to analyse the warehouse activities and mathematical model is implemented in MATLAB to quantify the leanness at desired CSL. A comprehensive framework is developed to determine lean FB buffer size for a Retail Distribution Centre (RDC) of a cosmetics industry.FindingsThe CSL increases monotonically; however, the results concerning spent efforts towards CSL improvement gets diminished with raised demand variances. The desired CSL can be achieved at least FB capacity and fewer Storage Waste (SW) as it shifts towards more lean system regime. It is not possible to improve Value Added (VA) time beyond certain constraints and therefore, it is recommended to reduce Non-Value Added (NVA) order processing activities to improve leanness.Research limitations/implicationsThis study determines “just-right” capacity and investigates the impact of buffer and demand variations on leanness. It helps managers to analyse warehouse processes and design customized distribution policies in food, beverage and retail grocery warehouse.Practical implicationsProposed buffering model offers customized strategies beyond pre-set CSL by varying it dynamically to reduce wastages. The mathematical model deriving lean sizing and mitigation guidelines are constructive development for managers.Originality/valueThis research provides an inventive approach of VSM model and Mathematical algorithm endorsing lean thinking to design effective buffering policies in a forward warehouse.

An inventory model for estimation of deterioration with time-dependent demand and storage cost

An inventory consists of items that are stocked temporarily before they are used or sold at a later time. An inventory model is required to enable the retailer to determine the optimal order quantity. The main goal is to determine how many items should be ordered and when to order to minimize the total cost. If retailers order too much, the holding cost will increase because the items that have to be stored increase and the items will deteriorate. If they order too little, then shortages may occur because the inventory could not meet the demand. In this paper, a mathematical model for inventories with deterioration, time-dependent demand, and time-dependent storage cost will be developed. A sensitivity analysis has been performed to examine how the changes in the model parameters affect the optimal solution. It can be concluded that if the deterioration rate decreases and the demand rate increases, then the total cost will also decrease.

Tracking Retail Investor Activity

ABSTRACTWe provide an easy method to identify marketable retail purchases and sales using recent, publicly available U.S. equity transactions data. Individual stocks with net buying by retail investors outperform stocks with negative imbalances by approximately 10 bps over the following week. Less than half of the predictive power of marketable retail order imbalance is attributable to order flow persistence, while the rest cannot be explained by contrarian trading (proxy for liquidity provision) or public news sentiment. There is suggestive, but only suggestive, evidence that retail marketable orders might contain firm‐level information that is not yet incorporated into prices.

Supplier's capacity investment strategy with factoring finance

Sufficient cash flow and an appropriate capital structure are foundational for the smooth operations of firms. Factoring finance provides an efficient solution for suppliers to fill capital gaps and ensure normal production. Factoring can be provided through either external or internal finance, which are both examined in this study, via factor-led factoring or retailer-led factoring. This study discusses the value of factoring finance to supply chain participants who exhibit loss aversion. Using a game-theoretic approach and equilibrium analysis, we find in each of the factoring schemes that the supplier may choose one of the three following strategies: Strategy N with no liability; Strategy P with partial liability; and Strategy F with full liability. This choice depends primarily on the financing rate and the supplier's degree of loss aversion. The choice among these strategies also affects the relationship between the retailer's order quantity and the supplier's capacity investment. We find that suppliers with low loss aversion prefer retailer-led factoring and that suppliers with high loss aversion have more incentives to adopt factor-led factoring. The loss-averse supplier is more likely to implement Strategy F under retailer-led factoring than under factor-led factoring. The loss-averse supplier tends to invest more capacity under factor-led factoring than under retailer-led finance, while the opposite is the case for the loss-neutral supplier. Our study provides guidelines for supply chain participants in their use of factoring finance to enhance their profits when accounting for both the particular factoring scheme and operational behavior.

Asset Price Dynamics with Limited Attention

Abstract We identify long-lived pricing errors through a model in which inattentive investors arrive stochastically to trade. The model’s parameters are structurally estimated using daily NYSE market-maker inventories, retail order flows, and prices. The estimated model fits empirical variances, autocorrelations, and cross-autocorrelations among our three data series from daily to monthly frequencies. Pricing errors for the typical NYSE stock have a standard deviation of 3.2 percentage points and a half-life of 6.2 weeks. These pricing errors account for 9.4$\%$, 7.0$\%$, and 4.5$\%$ of the respective daily, monthly, and quarterly idiosyncratic return variances.

The supply chain effects on order strategy of cross-shareholdings

ABSTRACT This study examines the joint impact of the vertical cross-shareholdings and external financing, including trade credit and bank loans, on the order strategy of a capital-constrained retailer. We set the target retailer and his supplier, which are connected with vertical cross-shareholdings, in the extended Cournot and Stackelberg game. The capital-constrained retailer could raise external financing when he has exhausted his own cash. Besides, the retailer may be faced with the random shock result from the other business. We use optimal response function to model how the capital-constrained retailer determines his order quantity under cross-shareholdings in response to different market conditions (such as his own cash level and other competitor’s order strategy). We find that, the retailer orders more under cross-shareholdings if the retailer is well-funded with his own cash or external financing, resulting in a win-win situation for the supplier and retailer. However, if the retailer has run out of all his cash and credit, the cross-shareholdings have no effect on the retailer’s order strategy. Thus, it helps the capital-constrained retailer to acquire competitive advantage that he could be well-funded with external financing under cross-shareholdings.

An examination of the NYSE’s retail liquidity program

The NYSE's Retail Liquidity Program (RLP) is a novel, restricted-access venue, in which orders cannot originate from a trading algorithm or any other computer methodology, designed to attract retail orders by offering price improvement. The mean price improvement in the RLP is about $0.0038 per share. RLP trades occur on 50.2 % of days, and on these days, the spread is one-cent 42 % of the time compared with a little less than 33 % of the time for other days. Greater tick-size constraint leads to more RLP trades, and the quoted spread is lower on days with RLP trading. Thus, the RLP sorting mechanism appears to reduce lit market liquidity suppliers' adverse selection concerns and enables them to provide better sub-penny prices to retail traders on lit markets.

Financing strategy selection and coordination considering risk aversion in a capital-constrained supply chain

<p style='text-indent:20px;'>By applying Stackelberg game theory, this paper investigates the supply chain with a risk-neutral retailer and a risk-averse supplier, measuring risk-averse behavior by using conditional value-at-risk (CVaR). The equilibrium solutions of the supplier's wholesale price and the retailer's order quantity are obtained under two financing strategies: supplier financing (SF) and supplier investment (SI). It is found that the supplier's risk aversion is a crucial factor affecting both parties' financing decisions, and the supplier should offer different financing strategies to the retailer based on his risk attitude and the profit-sharing coefficient. However, the retailer prefers SF regardless of the supplier's risk aversion. Taking bank credit financing as a basic model, the advantages of SF and SI have been investigated. A Pareto improvement region for the two finance strategies has been identified and some suggestions are provided for the supplier's optimal utility. Then we extend to the situation that both parties are risk-averse and use the financing cost-sharing mechanism to achieve centralized decision-making.</p>

Speed segmentation on exchanges: Competition for slow flow

In 2015, a Canadian stock exchange, TSX Alpha Exchange, implemented a speed bump for marketable orders and an inverted fee structure as part of a redesign. We find evidence of mild improvements in market quality after the redesign, and we do not find that Alpha appreciably segmented retail order flow away from other Canadian exchanges. For high-priced stocks, Alpha's users trade off improvements in execution size against larger effective spreads after the redesign and adjust their trading behavior in a manner consistent with this trade-off. The findings suggest that speed bumps may enable exchanges to compete for latency-insensitive orders.

On the value of information sharing in the presence of information errors

Errors may occur in the information received by a manufacturer from the retailer. There are two types of information errors: transmission error that occurs in the transmission of information from the retailer to the manufacturer, and source error that occurs in the data observed by the retailer. This paper studies the value of information sharing in the presence of either or both types of information errors. In particular, when information is shared, the manufacturer may use both the shared demand information and the retailer's order quantity to make decisions, or it may rely solely on the shared demand information and disregard the retailer's order quantity when forecasting demand for the future. We analyze the values of information sharing for both settings, and characterize the lowest forecast error information sharing strategy for the manufacturer. Our results suggest that transmission error and source error have significantly different impacts on the value of information sharing and the manufacturer's optimal strategy.