Substitution Products Research Articles

Welfare-maximizing tariff versus trade-surplus-maximizing tariff: Impacts on multinational firm competition

Designing appropriate import tariff rates is crucial for global trade. In this paper, we propose game-theoretic models to investigate how tariff policies affect the competition of multinational firms (MNFs) in a global trading environment. The MNFs sell substitutable products and compete in two countries where the governments may adopt a welfare-maximizing tariff or a trade-surplus-maximizing tariff. We derive the equilibrium outcomes under different tariff policies and analyze the effects on the MNFs' profits and social welfare. We find that the MNF will solely serve the domestic market if the foreign country's tariff rate exceeds a threshold. We show that the tariff rate is higher under the trade-surplus-maximizing tariff than under the welfare-maximizing tariff. Under the welfare-maximizing tariff, the government may set a modest tariff rate to incentivize the product sales by the foreign MNF if its product's value-added level (i.e., the product value deducting the production cost) is high relative to the domestic MNF's. However, under a trade-surplus-maximizing tariff policy, the government always sets a high tariff rate to block imports. Moreover, we find that if one government deviates from the welfare-maximizing tariff to the trade-surplus-maximizing tariff, this always hurts social welfare and also harms the domestic MNF's profit if its product value-added level is low relative to the foreign MNF's. If the other government responds by switching to the trade-surplus-maximizing tariff as well, this will benefit the domestic MNF but harm social welfare.

Could the Lacking Absorption Capacity of the Inflowing Capital Be the Real Cause of the Resource Curse?—A Case Study of Transition Economies

The present study proposes an alternative explanation for the negative natural-resource-growth nexus. Based on the theoretical analysis, the study shows that a balanced capital–labor ratio plays an essential role in the absorption of complex capital goods. It estimates the parameters of the constant elasticity of the substitution production function in Mathcad using nonlinear least squares, i.e., an approximate Marquardt method of optimization. The empirical analysis is based on the time-series data of these countries for the time interval between 2000 and 2020. We conducted analyses by calculating the elasticity of substitution between capital and labor. Specifically, for these countries, the elasticity of substitution of capital and labor appeared to be less than one, which indicates a lack of labor, or, more precisely, a qualified labor force. Each of these countries receives windfall profits from the exploitation of natural resources, which greatly influences the import of capital-intensive products of complex technologies—in other words, the import of capital. However, the lack of an adequate labor force that could utilize the increased capital led to a decrease in the elasticity of capital and labor substitution. A comparison of the optimal and the observed capital–labor ratio coefficient shows that this coefficient is significantly higher than optimal in all three countries. Therefore, while keeping the wage fund in balance with fixed capital costs, investments in the knowledge economy and human capital appear to be the preferred areas for the efficient allocation of oil revenues.

Inventory management for stockout-based substitutable products under centralised and competitive settings

Inventory planning in fashion markets is highly challenging, owing to uncertain demand; yet, in making inventory decisions, retailers may be able to capitalise on high substitutability between products. This research develops single-period inventory-management models describing a market with two substitutable products, under stockout-based substitution; i.e. when a customer’s preferred product is out-of-stock, s/he may choose to purchase the substitute. Two settings are considered: centralised (a single retailer who sells both products) and competitive (two retailers, each selling one product). For each setting, we derive closed-form analytical solutions for the inventory levels that maximise expected profit. The model is further enriched with sales data from an online apparel retailer offering substitutable products (a sneaker in different colours), and we analyse the sensitivity of the optimal inventory levels and profits to parameter values. Key findings include the following: (i) Under competitive conditions, both retailers always order positive inventory so as not to lose customers. However, in a single-retailer setting, there are situations in which the retailer orders inventory for only one product. (ii) The optimal inventory levels and corresponding profits are highly sensitive to consumers’ willingness to substitute between products. These findings provide concrete insights that can guide fashion brands’ inventory-management decisions.

Operational research models for green technology cross‐licensing with known carbon quota trading prices

AbstractGreen finance contributes significantly to the openness and transparency of carbon quota trading prices, which is conducive to the development of green technology innovation. With known carbon quota trading prices, we construct game‐based operational research models to analyze fixed‐fee and mixed‐fee cross‐licensing strategies for green technologies between two competing firms under the cap‐and‐trade policy. We compare the equilibrium outcomes of no‐licensing, fixed‐fee, and mixed‐fee cross‐licensing strategies. The findings reveal that product pricing under the fixed‐fee cross‐licensing strategy is beneficial to consumers. The mixed‐fee cross‐licensing strategy is optimal in terms of firms' total profits. When the degree of product substitutions is large and the improvement in carbon emissions is small, firms are more inclined to the no‐licensing strategy. We further introduce the revenue‐sharing contract, which can extend the Pareto improvement domain and improve the performance of green technology cross‐licensing strategies.

Product Market Competition and Strategic Disclosure of Industrial Segment-Level Information

ABSTRACT This study examines how several determinants of industry product market competition—product substitutability, market size, and entry costs—affect managers’ strategic disclosure of industrial segment-level information. I find evidence of an inverted U-shaped relation between competition and managerial disclosure of segment-level research and development expenditure. Competition is insignificantly (negatively) related to the likelihood of managers disclosing segment-level number of employees at low (high) competition levels. Competition is insignificantly related to disclosure of the segment-level number of employees. The study also finds that a firm’s market share interacts with competition in the industry to influence managerial disclosure. When a firm’s market share increases, managerial disclosure of segment-level information also increases, with this relation becoming stronger at higher competition levels. This study contributes to the literature by showing that the nature of product market competition and a firm’s competitive position in an industry are important determinants of industrial segment-level disclosure. JEL Classifications: D4; L1; M40; M41.

Economic Justification of an Investment Project in Vegetable Growing Based on a Comprehensive Sensitivity Analysis

Introduction. The practice of investment design in the agricultural sector indicates the need for comprehensive consideration of various types of uncertainty in the process of evaluating the effectiveness of financial investments in investment projects using various tools and methods, which is of particular importance for protected soil vegetable growing, as one of the most capital-intensive industries. The domestic greenhouse business is an attractive area of direct investment, since its development is the main factor in the growth of domestic consumption and import substitution of vegetable products. In this article, the economic justification of the investment project for the organization of greenhouse vegetable growing is carried out on the basis of a comprehensive sensitivity analysis used to assess risks. Methodology. In the process of assessing the economic efficiency and investment attractiveness of the project, one-factor and two-factor analysis of the variation of parameters, as well as the method of critical points were used. Results. Using the example of a real investment project, the influence of a large number of different variations of key parameters on the resulting project performance indicators was analyzed, which made it possible to determine their marginal (critical) values. The results obtained make it possible to prevent potential problems and adjust indicators in the process of project implementation under conditions of uncertainty. Conclusions. Sensitivity analysis of an investment project is an important component of the economic justification of an investment project, which enables to predict risks and make decisions for its successful implementation.

The Strategic Adoption of Environmental Corporate Social Responsibility with Network Externalities

Abstract This paper adopts a green managerial delegation model in a polluting network industry wherein consumers form fulfilled rational expectations of network externalities. We show that firms are consistently incentivized to undertake ECSR (environmental corporate social responsibility) under price competition, while positive network externalities can increase the strategic level of ECSR. We also show that product substitutability between network products can play an important role in determining a firm’s strategic level of ECSR and resulting profits. Finally, ECSR is conducive to increasing environmental quality and social welfare in a high-polluting network industry. Therefore, the strategic adoption of ECSR in a network industry is Pareto-improving as environmental damage becomes serious.

HOW ARE EMOTIONAL ATTACHMENT STRATEGIES CURRENTLY EMPLOYED IN PRODUCT-SERVICE SYSTEM CASES? A SYSTEMATIC REVIEW UNDERSCORING DRIVERS AND HINDRANCES

AbstractAiming to decouple value creation from resource consumption, the Circular Economy is considered an alternative to the current linear model of production and consumption. Among the innovative circular business models, Product-Service Systems (PSS) have been recognized as a possible route to achieve enhanced sustainability performance through the extension of product lifespans and the reduction of product substitution. However, PSS may lead to rebound effects due to less careful behavior during the use phase, which compromises product durability. Currently, the effect of non-ownership models on product care is not yet fully understood, nor are the strategies that could enable better product care. This research aims to deeper comprehend the consumer-product relationships in PSS solutions, as well as to shed light on the potential role of emotional durability in PSS development for product attachment. In order to do so, this paper analyses twelve Product-Service System cases derived from a systematic literature review, categorizing the emotional attachment strategies in each case, and identifying how these strategies might hinder or potentialize PSS solutions.

Research on low-carbon dual channel supply chain considering product substitution under government carbon tax and low-carbon subsidy.

Since dual channel supply chain has become one of the main modes of supply chain, its research has acquired great significance. This paper constructs a low-carbon dual channel supply chain composed of one manufacturer and one retailer. The manufacturer produces low-carbon product and high carbon product with substitution relationship. The retailer sells high carbon product in traditional channel. The manufacturer also sells low-carbon product in direct channel. The government, manufacturer and retailer conduct a three-level Stackelberg game. This paper studies the optimal decisions of the government, manufacturer and retailer under the three modes of carbon tax + subsidy, carbon tax only and subsidy only. It has been found that for social welfare, the carbon tax + subsidy model is higher than the subsidy model and carbon tax model. For manufacturer profit, the subsidy mode is the highest, followed by the carbon tax + subsidy mode. For retailer profit, the carbon tax + subsidy model is equal to the carbon tax model. The increase in the proportion of consumers who prefer high carbon product in the total market or product cost of low-carbon product, will increase the profit of traditional channel and reduce the profit of direct channel.

Production quality and pricing strategy for substitutable products under comparison effects

Comparison effects have been studied extensively in many fields. In particular, existing operations management articles have discussed the impact of comparison effects on enterprises' production and pricing decisions. Research has also shown that consumers' purchasing decisions are primarily determined by three factors: product quality, selling price, and comparison effects. The current study introduces the concepts of social and temporal comparison effects to examine how comparison effects influence a monopolist’s production quality and pricing strategy for substitutable products. Results reveal the following: (1) Setting different prices for even two types of substitutable products with negligible quality differences can divide customers into three groups under the influence of social comparison effects in a single-stage model. (2) The monopolist should avoid using a price discrimination strategy in which products with a short market life cycle have the same quality but different prices. (3) When the market life cycle of products is sufficiently long in the single-product market and the market with two substitutable products, the monopolist’s optimal choice in the second stage is to keep production quality constant and increase the selling price. Consequently, the number of buyers does not decrease because of temporal comparison effects. Therefore, the firm increases its revenue. (4) For the market with two substitutable products with quality differences, one approximate optimal strategy for the enterprise in the second stage is to keep the selling price constant with the assumption that product quality cannot be adjusted after the first period. At this point, the consumption situation in the market is the same as that in the first stage. Therefore, when no external constraints exist, the monopolist firm can obtain more benefits in the second stage than in the first stage by exploiting the temporal comparison effects of consumers in the second stage. (5) When consumer identity information can be confirmed in the market, social comparison effects, similar to temporal comparison effects, could help the enterprise increase its price and profit while maintaining product quality. These social and temporal comparison effects constrain consumers. Thus, the number of people who continue to buy products does not decrease.

Optimal Recommendation Strategies for AI-Powered E-Commerce Platforms: A Study of Duopoly Manufacturers and Market Competition

Artificial intelligence-powered recommendation systems have gained popularity as a tool to enhance user experience and boost sales. Platforms often need to make decisions about which seller to recommend and the strength of the recommendation when conducting recommendations. Therefore, it is necessary to explore the recommendation strategy of the platform in the case of duopoly competition. We develop a game model where two competing manufacturers sell products through an agency contract on a common platform, and they can decide whether or not to provide recommendations to the manufacturers. Our highlight lies in the endogenous recommendation strength of the platform. The findings suggest that it is optimal for the platform to offer recommendation services when the commission rate is high. The platform also prefers to only recommend one manufacturer in the market with low or high competition, but it prefers to recommend both manufacturers in moderately competitive markets. From the view of manufacturers, they can benefit from the recommendation service as long as the commission rate is not too low. Moreover, recommending only one manufacturer consistently yields stronger recommendations compared to recommending multiple manufacturers. However, the impact of recommendation on prices is influenced by the commission rate and product substitutability. These results have significant implications for platform decision making and provide valuable insights into the trade-offs involved in the development of recommendation systems.

Production and decarbonisation of conventional gasoline vehicle automakers under subsidy and regulation policies

ABSTRACT Decarbonising the transportation sector through electrification is critical to reducing greenhouse gas emissions. To explore the decarbonisation of conventional gasoline vehicle (GV) automakers in GV and/or electric vehicle (EV) production, we develop analytical models under pure subsidy, pure regulation, and hybrid subsidy-regulation policies. We first examine the monopoly GV automaker’s EV market entry intention in each policy and find that it always increases with consumer range sensitivity and subsidy/regulation parameters, but decreases with product substitutability between the two vehicles. Then, we analyse the implication of policy changes on equilibrium outcomes. Our results show that although introducing regulations and removing subsidies have opposite effects on optimal production and driving range decisions, both might stimulate or restrict the GV automaker to decarbonise, depending on the unit carbon emissions of GVs and EVs. Finally, we extend the monopoly model to the duopoly case, showing that while entering the EV market hurts the EV automaker, it allows the GV automaker’s carbon emissions to always decrease with GV credit coefficients. Together with sensitivity analyses on key parameters, our findings provide insights not only for GV automakers to respond to policy changes but also for governments to design incentives for EV diffusion.

Assessment of Reported Adverse Events After Interchanging Between TNF-α Inhibitor Biosimilars in the WHO Pharmacovigilance Database.

Observational studies have shown that a significant proportion of patients interchanging between tumor necrosis factor-α inhibitor biosimilars withdraws from the new treatment because of adverse effects. We aim to analyze adverse events related to interchanging from tumor necrosis factor-α (TNF-α) inhibitor reference products to biosimilars and between biosimilars reported in the World Health Organization pharmacovigilance database. We extracted all cases reporting the Medical Dictionary for Regulatory Activities term "Product substitution issue (PT)" for TNF-α inhibitors. Then, we analyzed and categorized all adverse events reported in more than 1% of cases. We compared the adverse events reported according to reporter qualification, type of switch, and type of TNF-α inhibitor using Chi2 tests. We conducted a network analysis coupled with a clustering approach to identify syndromes of co-reported adverse events. In the World Health Organization pharmacovigilance database, 2543 cases and 6807 adverse events related to TNF-α inhibitor interchangeability have been reported up to October 2022. Injection-site reactions were the most reported adverse events with 940 cases (37.0%), followed by modifications in drug effect in 607 cases (23.9%). Musculoskeletal, cutaneous, and gastrointestinal disorders linked to the underlying disease were reported in 505 (20.0%), 145 (5.7%), and 207 (8.1%) cases, respectively. Adverse events non-related to the underlying disease were nonspecific (n = 458, 18.0%), neurologic (n = 224, 8.8%), respiratory (n = 132, 5.2%), and psychological disorders (n = 64, 2.5%). Injection-site reactions and infection-related symptoms (e.g., nasopharyngitis, urinary tract infection, lower respiratory tract infection) were more reported by non-healthcare professionals while adverse events related to reduced clinical efficacy (e.g., drug ineffective, arthralgia, psoriasis) were more reported by healthcare professionals. The proportions of injection-site reactions were higher when switching between biosimilars of the same reference product, but the proportions of adverse events related to reduced clinical efficacy (e.g., psoriasis, arthritis, psoriatic arthropathy) were more reported when switching from a reference product. The main differences in the proportions of reported cases between adalimumab, infliximab, and etanercept were driven by symptoms related to the underlying targeted diseases, except for a higher reporting rate of injection-site pain with adalimumab. Adverse events evocative of hypersensitivity reactions were reported in 192 (7.6%) cases. Most of the network clusters concerned non-specific adverse events or were related to reduced clinical efficacy. This analysis highlights the burden of patient-reported adverse events when interchanging between TNF-α inhibitor biosimilars, notably injection-site reactions, non-specific adverse events, and symptoms related to reduced clinical efficacy. Our study also highlights differences in reporting patterns between patients and healthcare professionals and depending on the type of switch. The results are limited by missing data, the lack of precision of the coded Medical Dictionary for Regulatory Activities terms, and by the variability of reporting rate of adverse events. Thus, incidence rates of adverse events cannot be inferred from these results.

Implications of product substitutability in a distribution channel

This paper examines the effect of product substitutability on the equilibrium profits in a distribution channel of two symmetric manufacturers selling substitutable products to consumers through a nonexclusive retailer. Conventional wisdom suggests that when the products are more substitutable, the retailer will be better off while the manufacturers will be worse off, owing to the dominance of the competition effect of substitutability. In this work, we identify the hitherto neglected demand effect of substitutability and show that the relative strength between the competition and demand effects is the key to this result. As the products become more substitutable, the upstream competition does intensify, but vitally, the demand may expand. We show that the interests of the retailer and manufacturers can be aligned in terms of product substitutability, depending on both the demand and supply factors. Surprisingly, the conventional result can even be completely reversed such that the manufacturers benefit from a certain level of substitutability for some demand patterns. Assuming linear demand, we further isolate the important role of the bargaining power balance and the alternative of agency selling format in moderating the competition effect. For example, as the retailer gains more bargaining power, the (negative) demand effect can overshadow the (positive) competition effect such that a higher degree of substitutability can actually hurt the retailer. Our findings provide valuable implications for persuasive advertising and category management.

Upstream conduct and price authority with competing organizations

AbstractWe characterize the degree of price authority that competing upstream principals award their downstream agents in a setting where these agents own private information about demand and incur nonverifiable distribution costs. Principals cannot internalize these costs through monetary incentives and design “permission sets” from which agents choose prices. The objective is to understand the forces shaping delegation and the constraints imposed on equilibrium prices. When principals behave noncooperatively, agents are biased toward excessively high prices because they pass on distribution costs to consumers. Hence, the permission set only features a price cap that is more likely to bind as products become closer substitutes, in sectors where distribution is sufficiently costly, and when demand is not too volatile. By contrast, when principals behave cooperatively, the optimal delegation scheme is richer and more complex. Because principals want to charge the monopoly price, the optimal permission set features a price floor when the distribution cost is sufficiently low, it features instead full discretion for moderate values of this cost, and only when it is high enough, a price cap is optimal. Surprisingly, while competition (as captured by stronger product substitutability) hinders delegation in the noncooperative regime, the opposite occurs when principals maximize industry profit.

Should Private Exchanges of List Price Information Be Presumed to Be Anticompetitive?

Harrington (2022) provides a novel theory that explains how a private information exchange involving gross list prices can lead to higher transaction prices. On this basis, he considers that private list price exchanges between competitors should be presumed to harm competition. The theory, which has received much attention in the context of the EU trucks cartel case, was recently referred to by the UK Competition Appeal Tribunal as a “unilateral effects” theory, given that it involves no coordination once list prices have been exchanged. Unlike conventional collusion, the theory does not rely on a monitoring and retaliation mechanism. Given its novelty and relevance for recent competition cases, we consider it useful to explore its potential limitations. We show that both the scope for and magnitude of harm are sensitive to key modelling parameters such as the number of firms, the degree of product substitutability, and the level of marginal cost—sometimes in opposite directions. We also show that there may be no scope for the anticompetitive effect when firms are capacity constrained. Finally, we discuss several additional qualitative aspects that may undermine the theory of harm: the adaptability of internal pricing processes over time, the lack of verifiability of exchanged list price information (especially when the exchange is private), and possible procompetitive or competitively neutral reasons for the conduct. We conclude that, although Harrington provides an insightful addition to the wider literature on the competitive effects of information exchanges, the effects of list price exchanges are not sufficiently unambiguous to justify a general presumption of competitive harm.

Understanding the driving factors and finding the pathway to mitigating carbon emissions in China's Yangtze River Delta region

Technological progress is an effective tool for controlling carbon emissions. However, because the connection between technological progress and carbon emissions remains under-theorized, the literature often discusses the overall effect of technological progress, ignoring the heterogeneity of technology. To better understand the driving factors of carbon emissions, we develop a new theoretical model based on the Green Solow model, in which technology is divided into production, energy conservation, and energy substitution technologies. Dynamic panel models are then applied to show the driving influence of different factors affecting carbon emissions in the Yangtze River Delta (YRD) region between 2000 and 2017. The results indicate that total technological progress is conducive to reducing carbon emissions. The heterogeneity analysis indicates a positive reduction effect on carbon emissions for energy substitution and energy conservation technologies, but not for production technology. Interestingly, production technology significantly drives carbon emissions. However, the results also suggest that to control carbon emissions, it is necessary to promote production technology. Further analysis suggests that production technology plays an important role in the effectiveness of energy conservation and energy substitution technologies in decreasing carbon emissions.

Material flow analysis and global warming potential assessment of an industrial insect-based bioconversion plant using housefly larvae

The significant increase in the demand for biomass waste treatment after garbage classification has led to housefly larvae treatment becoming an attractive treatment option. It can provide a source of protein while treating biomass waste, which means that nutrients can be returned to the natural food chain. However, the performance of this technology in terms of its environmental impacts is still unclear, particularly with regards to global warming potential (GWP).This study used a life cycle assessment (LCA) approach to assess a housefly larvae treatment plant with a treatment capacity of 50 tons of biomass waste per day. The LCA results showed that the 95% confidence intervals for the GWP in summer and winter were determined to be 24.46–32.81 kg CO2 equivalent (CO2-eq)/ton biomass waste and 5.37–10.08 kg CO2-eq/ton biomass waste, respectively. The greater GWP value in summer is due to the longer ventilation time and higher ventilation intensity in summer, which consumes more power. The main GWP contributions are from (1) electricity needs (accounting for 78.6% of emissions in summer and 70.2% in winter) and (2) product substitution by mature housefly larvae and compost (both summer and winter accounting for 96.8% of carbon reduction).

Co-opetition or decentralization? A study of manufacturers’ sourcing and distribution strategies

This study aims to explore the impacts of manufacturers’ downstream distribution channels on upstream sourcing strategy and of the business relationship between manufacturers resulting from upstream sourcing transactions on downstream distribution strategy, through investigating the interplay of co-opetition and decentralization. We consider a framework with two manufacturers producing substitutable products. In the upstream component market, one manufacturer needs to source a key component from either a third-party supplier or its competing manufacturer. In the downstream consumer market, each manufacturer sells the end product through either an integrated or a decentralized distribution channel. The two channels engage in a price competition. For a given downstream distribution strategy, we find that even at a higher component price, the manufacturer who purchases the component may have incentive to source from its competitor that has an integrated channel, while having no incentive to choose a decentralized competitor. A key driver behind this contrast is that co-opetition can be substituted by a decentralized channel used by the competitor, which enables the manufacturer who purchases the component to mitigate price competition more efficiently. For a given upstream sourcing strategy, in contrast to the literature which shows that manufacturers generally prefer downstream decentralization at high competition intensity, we find that integration is always preferred by manufacturers who engage in supplier–buyer cooperation. A key underlying driver is that co-opetition helps the manufacturer who sells the component mitigate price competition more efficiently than decentralization. We also extend our analysis by investigating manufacturers’ decisions on both sourcing and distribution strategies.

Detection, chemical analysis, and pharmacological characterization of dipyanone and other new synthetic opioids related to prescription drugs.

The emergence of structurally diverse new synthetic opioids (NSOs) has caused the opioid crisis to spiral to new depths. Little information is available about the pharmacology of most novel opioids when they first emerge. Here, using a β-arrestin 2 recruitment assay, we investigated the in vitro μ-opioid receptor (MOR) activation potential of dipyanone, desmethylmoramide, and acetoxymethylketobemidone (O-AMKD) - recent NSOs that are structurally related to the prescription opioids methadone and ketobemidone. Our findings indicate that dipyanone (EC50=39.9 nM; Emax=155% vs. hydromorphone) is about equally active as methadone (EC50=50.3 nM; Emax=152%), whereas desmethylmoramide (EC50=1335 nM; Emax=126%) is considerably less active. A close structural analogue of ketobemidone (EC50=134 nM; Emax=156%) and methylketobemidone (EC50=335 nM; Emax=117%), O-AMKD showed a lower potency (EC50=1262 nM) and efficacy (Emax=109%). Evaluation of the opioid substitution product buprenorphine and its metabolite norbuprenorphine confirmed the increased in vitro efficacy of the latter. In addition to in vitro characterization, this report details the first identification and full chemical analysis of dipyanone in a seized powder, as well as a postmortem toxicology case from the USA involving the drug. Dipyanone was quantified in blood (370 ng/mL), in which it was detected alongside other NSOs (e.g., 2-methyl AP-237) and novel benzodiazepines (e.g., flualprazolam). While dipyanone is currently not commonly encountered in forensic samples worldwide, its emergence is worrisome and representative of the dynamic NSO market. Graphical Abstract.