0000000000427560
AUTHOR
Rachel R. Chen
Service Shutdowns and Compensation: Cash Refunds or Vouchers?
Government mandated shutdowns in response to the COVID-19 pandemic have led to a vast number of service cancellations and a heated debate on compensation policies. Service providers pushed for vouchers as a means of compensation, whereas customers demand cash refunds or generous vouchers that compensate for postponed service. Regulators, at the same time, insist that customers must be granted the right to be reimbursed in money. To address the debate, this paper develops an analytical framework to study the profitability and efficiency of different compensation policies following shutdown. Surprisingly, we find that the voucher-only policy dominates the hybrid policy that offers customers t…
Group Buying of Competing Retailers
Under group buying, quantity discounts are offered based on the buyers' aggregated purchasing quantity, instead of individual quantities. As the price decreases with the total quantity, buyers receive lower prices than they otherwise would be able to obtain individually. Previous studies on group buying focus on the benefit buyers receive in reduced acquisition costs or enhanced bargaining power. In this paper, we show that buyers can instead get hurt from such cooperation. Specifically, we consider a two-level distribution channel with a single manufacturer and two retailers who compete for end customers. We show that, under linear demand curves, group buying is always preferable for symme…
Opaque Distribution Channels for Competing Service Providers: Posted Price vs. Name-Your-Own-Price Mechanisms
Opaque selling has been widely adopted by service providers in the travel industry to sell off leftover capacity under stochastic demand. We consider a two-stage model to study the impact of different selling mechanisms, posted price (PP) versus name-your-own-price (NYOP), of an opaque reseller on competing service providers who face forward-looking customers. We find that in this environment, providers prefer that the opaque reseller uses a posted price instead of a bidding model. This is because the ability to set retail prices is critical for extracting surplus from customers who wait to purchase from the reseller. Such surplus extraction enables providers to set high prices for advance…
Reward-based crowdfunding campaigns: Informational value and access to venture capital
We consider an entrepreneur who designs a reward-based crowdfunding campaign when the campaign provides a signal about the future demand for the product and subsequent venture capital is needed. We find that both the informativeness of the campaign and considerations related to gaining access to venture capital funding affect the entrepreneur’s choice of campaign instruments, as well as her decision of whether to run a campaign. In particular, entrepreneurs should launch the campaign either when it is highly informative or when it is not informative at all. For relatively low levels of informativeness, but not so low that the venture capitalist (VC) completely ignores the campaign outcome …