Abstract
Many regulations have been enacted to prevent the multinational firm's (MNF's) tax avoidance and cause the enforcement cost of incoming shifting. This paper investigates the impact of the ...enforcement cost on a firm's tax‐efficient supply chain allocation strategy, wherein the firm can either create a research and development (R&D) center that innovates the intangible assets or create a distributor that acts as a marketing hub, in a low tax region to explore tax arbitrage. We show that when the firm engages in market competition and the impact of the enforcement cost is low, it prefers to create a distributor in the low tax region to align the benefits of tax saving and internal coordination. While if the impact of the enforcement cost is high, the firm prefers R&D center in the low tax region that can effectively mitigate the enforcement cost and achieve tax saving. When the market competition becomes more intense, the firm becomes more likely to choose R&D center in the low tax region to alleviate market competition. In this scenario, the social welfare is always higher when the firm allocates distributor in the low tax region. When an external supplier exists, the firm is still more likely to choose R&D center in the low tax region to reduce the supplier's wholesale price. What's more, in the presence of external supplier, the social welfare can be higher under either allocation format.
This paper provides a novel explanation for collusion between two procurement service providers (PSPs) and investigates effective contracts to collapse tacit collusion. By analyzing a benchmark ...contract with compensation designed solely by a retailer, we find that compensation alone has no effect on intensifying PSPs' competition such that the PSPs still fully control the total service fee by increasing/decreasing the commission fee imposed on manufacturers. To effectively abate collusion, we propose two potential tactics to intensify PSPs' competition: setting a reserve price and introducing a direct sourcing channel. We find that both are effective in combating PSPs' pricing power. The underlying force is that both tactics create credible threats to walk away from this transaction with PSPs, and hence, both incentivize PSPs to lower the total service fee. However, the retailer reduces total welfare to improve its own profit: (a) when the retailer sets a strategic reserve price and the product's value in the market is moderate or (b) when the retailer introduces a direct channel but its search capability is weak. By comparing these two proposed contracts, we find that the retailer should introduce a direct sourcing channel when the product's value is high.
•The interplay between retailer information acquisition and supplier encroachment is studied.•Both observable and unobservable acquisitions are examined.•The retailer (supplier) may prefer observable ...(unobservable) acquisition.•The supply chain may prefer unobservable acquisition depending on the entry cost.
This study investigates a retailer’s incentive of information acquisition when the supplier may encroach the retail channel. We show that a retailer’s acquisition behavior inevitably leaks some information to her upstream supplier, which can be utilized by the supplier to better design his price and encroachment decisions. When acquisition is observable to the supplier, the retailer may voluntarily give up this free option to prevent the supplier’s demand belief updating and also his possible encroachment. When acquisition is unobservable to the supplier, the retailer always undertakes acquisition in equilibrium, which endows her with an information advantage over the supplier. This information advantage, however, also eliminates the deterrence effect of acquisition on supplier encroachment and allows the supplier to encroach more frequently. The retailer may prefer observable acquisition to unobservable acquisition, whereas the supplier’s and the supply chain’s preferences over different acquisition options may vary according to the setup cost.
Medical rumors have become a threat to modern society. To study the spread and control of rumors, nonlinear differential equations modeling with the well‐mixed assumption is commonly used. However, ...this approach ignores the underlying network structure which plays an important role in information spreading. We establish a generalized differential equations model to study the spread and control of medical rumors in a highly asymmetric social network. In our model, each node represents a group of people and a “weighted” and “directed” network describes the communications between these nodes. This network can be generated from real‐world data by community detection algorithms. We provide methods to numerically calculate the final size of a rumor in each node and its derivatives with respect to each parameter. With these methods, if the government has resources to influence the parameters subject to certain constraints or cost functions, one can obtain the optimal resources allocation easily through nonlinear programming algorithms. We show that the implications on the government's resources allocation from the well‐mixed special case in the literature or conventional wisdom may become inapplicable in the general situation. Therefore, the underlying network should not be ignored. Because the final size of a medical rumor is not always the best measure of its damage, we extend our results to a wide class of objectives and show that different objectives result in very different implications. While the lack of a rule of thumb may sound negative, our flexible framework provides a powerful workhorse for interested parties to work out the details in their specific situations. Finally, we provide a sufficient condition for no outbreak of rumors. This condition can serve as a heuristic that a government with abundant resources can use to prevent the outbreak of rumors.
A vertical co‐product technology simultaneously produces multiple outputs that differ along a rankable quality metric. Co‐product manufacturers often sell products through a distributor. We examine a ...setting in which a manufacturer sells vertically differentiated co‐products through a self‐interested distributor to quality‐sensitive end customers. The manufacturer determines its production, product line design, and wholesale prices. The distributor determines its purchase quantities and retail prices. In traditional product‐line design, products can be produced independently of each other and higher‐quality products have higher production costs. This literature established that the length of the product line (i.e., difference between highest and lowest qualities) is greater in an indirect channel than in a direct channel. By contrast, co‐products cannot be produced independently of each other. Among other findings, we establish that this interdependency causes the opposite channel effect: for co‐products, the length of the product line is smaller in an indirect channel than in a direct channel. Additionally, we show that there exists a theoretical contract, combining revenue sharing and reverse slotting fees, that eliminates the indirect channel distortions in both product line design and output quantities.
Motivated by the challenge of allocating scarce resources from the federal government to different states during the COVID‐19 pandemic, this paper studies optimal schemes for allocating scarce ...resources to agents with private demand information under different favoritism structures. Through an investigation of a mechanism design model that aims to induce agents to report their demands truthfully, we find the following results. First, when the principal purely cares about social welfare and when the principal has sufficient resources to satisfy all agents' demands, we find that the optimal allocation scheme is efficient in the sense that it is identical to the optimal scheme for the “benchmark” case when favoritism differentials and information asymmetry are both absent. Second, when rationing is needed due to resource scarcity, we show that heterogeneity in “event‐independent” favoritism across agents will cause the principal to allocate more resources to agents with larger favoritism and less resources to others, resulting in inefficient allocations. Third, when agents possess heterogeneous “event‐specific” favoritism due to the existence of outside options, the resulting allocation may boost all agents' expected utilities, including those agents who do not have any outside option. Finally, we show that the “allocation distortion” caused by both information asymmetry and heterogeneous favoritism can be reduced when “positive externality” is present (i.e., allocating resources to one agent can benefit other agents).
•We propose a critical measure for review-based social learning outcome (SLO).•We characterize the optimal price path in closed form using a novel index of SLO.•Credible dual-channel reviews work ...synergistically in shaping a firm's pricing path.•Dual-channel reviews work antagonistically only when strong manipulations occur.•We demonstrate the settings where review manipulations benefit or hurt consumers.
Online reviews normally come from two distinct sources: first-party reviews are reviews published (by consumers) on a firm's own platform, and third-party reviews are ratings and feedback generated on a third-party website (e.g., a social media profile). Manipulations of first-party reviews could affect their credibility. We consider a two-period monopoly dynamic pricing problem with dual-channel social learning (SL) and truncated review manipulations (i.e., a firm may delete extremely low and high ratings). We propose a critical measure for SL outcome (SLO) that gauges consumers’ quality evaluation through SL and drives equilibrium outcomes. We first consider the case of a firm with myopic consumers. Without manipulations, we find that the optimal policy typically consists of increasing and decreasing prices regarding a threshold structure of SLO. The optimal price, expected profit and consumer surplus are monotone in SLO. More accurate dual-channel reviews benefit the firm and its consumers. With manipulations, we characterize the optimal price path in closed form using a novel index of manipulated SLO. Manipulations yield a higher expected profit increasing with manipulated SLO, but can induce three outcomes: benefiting all consumers, or benefiting some but hurting the others, or hurting all. More first-party reviews always facilitate the firm, but can benefit consumers only under weak manipulations. However, more third-party reviews can be detrimental for the firm but conducive for consumers under strong manipulations. We also discuss the robustness of our main qualitative insights and some extensions with additional salient features. Research implications and future directions are discussed finally.
Noncommunicable diseases (NCDs) are among the largest health emergencies nowadays. Although a large proportion of NCDs can be prevented effectively via good life habits, these remain ubiquitous and ...one main reason is people's self‐control problem caused by time‐inconsistent, present‐biased preferences. In this situation, we wonder whether a “long‐term” conditional cash transfer (CCT) program, which is known to be effective in shaping people's behaviors but expensive, can be a viable solution. We establish a model which can be fine‐tuned by many parameters, and show that our results are robust in a wide range of parameters. We identify the optimal CCT scheme which helps people achieve their long‐term plan while generating the lowest cash flow. Our results suggest interesting managerial insights like that the amount of necessary financial incentives can depend on people's age, and that the government's optimal CCT scheme does not depend on the level of people's naivete. Also, it is profitable for companies to hold such a program and sell enrollment to customers as self‐commitment devices. However, companies may exploit customers’ naivete to maximize their profit while hurting social welfare. We also examine situations that people's behaviors can only be monitored indirectly through inaccurate signals and that people are heterogeneous in how present‐biased they are.
We examine a (large) manufacturer’s bribery decision (to bribe or not to bribe) arising from a procurement auction under “disparate corruption pressure” when another (small) manufacturer is known to ...offer the auctioneer (i.e., the intermediary) a bribe in exchange for the “right of first refusal.” We discover that the large manufacturer should refuse to pay bribes at all times in order to prevent from leaking its private cost information to the small manufacturer and prevent from intensifying the competition. However, even when the large manufacturer is disadvantaged for refusing to bribe, we show that it can benefit from this corrupted auction when the difference in production efficiency or the bribe is high so that the “positive force” (i.e., cost advantage) derived from the right of first refusal dominates the information disadvantage. Hence, under a specific condition, the large manufacturer has no incentive to expose the collusion between the intermediary and the corrupt manufacturer. Such a “silence tactic” provides a plausible explanation for the prevalence of corrupt auctions in practice.
