The Equivalence of Price and Quantity Competition with Incentive Scheme Commitment

We consider a two stage diffrentiated products duopoly model (with linear demand and constant marginal cost). In the first stage prot maximizing owners choose incentive schemes in order to induce their managers to exhibit a certain type of behavior. In the second stage the managers compete either in prices or in quantities. In contrast to Singh and Vives (1984), we show that if the owners have sufficient power to manipulate the incentives of their managers, the equilibrium outcome is the same regardless of whether the rms compete in prices or in quantities. Basing the manager's objective function on a convex combination of own profit and the difference between own profit and the rival firm's profit is sufficient for the equivalence result to hold.

History Dependent Brand Switching: Theory and Evidence

We present a model of brand-switching in which a consumer's impression of each brand is based on her memory of past consumption of this brand, and is stochastically updated whenever the brand is consumed. In the ordinal version of the model, consumer's memory is an ordering of the available brands. The top brand is chosen and consumed, and may therefore move to a different ranking. In the cardinal version, the consumer remembers a "cumulative utility index" per brand, and, when a brand is consumed, the index is updated by the addition of a random variable, interpreted as "instantaneous utility." In both versions of the model it may be assumed that the consumer may sometimes be "dormant," choosing the same brand out of inertia, or that she is always "active," re-evaluating her decision based on her cumulative memory. We prove that, in all versions, the frequencies of choice converge, with probability 1, to limit frequencies which can be computed from the model's parameters. We also show that, under mild assumptions, every sequence of choices would have a positive probability. We test the ordinal model empirically, using scanner data on purchases of crackers, yogurts, and catsups. We show that both the "order effect" and the "inertia effect" exist. Specifically, the ordinal model performs significantly better than its restricted version, in which only the last brand is recalled. Similarly, the model performs significantly better with the inertia assumption than without it.

Economics, Psychology, and Social Dynamics of Consumer Bidding in Auctions

With increasing numbers of consumers in auction marketplaces, we highlight some recent approaches that bring additional economic, social, and psychological factors to bear on existing economic theory to better understand and explain consumers' behavior in auctions. We also highlight specific research streams that could contribute towards enriching existing economic models of bidding behavior in emerging market mechanisms.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/47034/1/11002_2005_Article_5901.pd

Satisficing Leads to Cooperation in Mutual Interests Games

We study the play of mutual interests games by satisficing decision makers. We show that, for a high enough inital aspiration level, and under certain assumptions of "tremble," there is a high probability (close to unity) of convergence to the Pareto dominant cooperative outcome. Simulations indicate that the theoretical result is robust with respect to the "trembling" mechanism

<b>Case Article</b>—Take Me Out Of The Ball Game

This paper describes a teaching case in which students model crowd management using process analysis. The case study consists of a classroom exercise that provides a practical illustration of the steps required to analyze a process, the need for abstraction in modeling a process, and an understanding of the relationship between process metrics and their managerial implications. The students are expected to behave as city planning consultants, addressing the long lines fans regularly face when getting home at the end of a Chicago Cubs™ baseball game. The case requires them to use knowledge from operations, economics, and process analysis classes to model, analyze and provide concrete solutions to alleviate crowding. Case Teaching Note: Interested Instructors please see the Instructor Materials page for access to the restricted materials. To maintain the integrity and usefulness of cases published in ITE, unapproved distribution of the case teaching notes and other restricted materials to any other party is prohibited. </jats:p