• Previous Article
    Hadamard directional differentiability of the optimal value of a linear second-order conic programming problem
  • JIMO Home
  • This Issue
  • Next Article
    Equilibrium strategies in a supply chain with capital constrained suppliers: The impact of external financing
November  2021, 17(6): 3049-3084. doi: 10.3934/jimo.2020107

Quality choice and capacity rationing in advance selling

School of Economics and Management, Jiangsu University of Science and Technology, Zhenjiang, Jiangsu 212003, China

Received  September 2019 Revised  February 2020 Published  November 2021 Early access  June 2020

Fund Project: The first author is supported by National Natural Science Foundation of China (NSFC) grants 71771106 and the second author is supported by Postgraduate Research & Practice Innovation Program of Jiangsu Province grants KYCX19_1649

This study considers a seller who sells a single product to strategic consumers sensitive to both price and quality over two periods: advance and spot. Customers' valuations are uncertain in the first period and revealed over time. The seller's decisions include whether to offer the product and, if so, the quality of the product, the prices in both periods, and whether to ration capacity in the advance period. The analysis is separated into two cases: unlimited capacity and limited capacity. The first case acts as a benchmark for the latter. It is found that in each case, the seller's decisions on product offering and quality choice are fully determined by a single parameter, namely the cost coefficient of quality. The optimal rationing policy and its determinants, however, are distinct in these different settings. And the optimal rationing policy is contingent on whether the high- or low-quality product is offered. Further, our numerical studies show that the seller can benefit from capacity rationing and flexibility on quality choice. Specifically, the value of rationing is not evident, whereas the value of flexibility on quality choice is considerably significant.

Citation: Taofeng Ye, Yan Zhao. Quality choice and capacity rationing in advance selling. Journal of Industrial and Management Optimization, 2021, 17 (6) : 3049-3084. doi: 10.3934/jimo.2020107
References:
[1]

E. Biyalogorsky and O. Koenigsberg, The design and introduction of product lines when consumer valuations are uncertain, Production and Operations Management, 23 (2014), 1539-1548.  doi: 10.1111/poms.12167.

[2]

J. Chevalier and A. Goolsbee, Are durable goods consumers forward-looking? Evidence from college textbooks, Quarterly Journal of Economics, 124 (2009), 1853-1884. 

[3]

C. Chiu and T.-M. Choi, Supply chain risk analysis with mean-variance models: A technical review, Annals of Operations Research, 240 (2016), 489-507.  doi: 10.1007/s10479-013-1386-4.

[4]

S.-H. Cho and C. S. Tang, Advance selling in a supply chain under uncertain supply and demand, Manufacturing & Service Operations Management, 15 (2013), 305-319. 

[5]

K.-L. HuangC.-W. Kuo and H.-J. Shih, Advance selling with freebies and limited production capacity, Omega, 73 (2017), 18-28.  doi: 10.1016/j.omega.2016.12.002.

[6]

W. JinJ. Luo and Q. Zhang, Optimal ordering and financing decisions under advance selling and delayed payment for a capital-constrained supply chain, Journal of the Operational Research Society, 69 (2018), 1978-1993.  doi: 10.1080/01605682.2017.1415643.

[7]

C. Li and F. Zhang, Advance demand information, price discrimination, and preorder strategies, Manufacturing & Service Operations Management, 15 (2013), 1-163.  doi: 10.1287/msom.1120.0398.

[8]

J. LiN. Granados and S. Netessine, Are consumers strategic? Structural estimation from the air-travel industry, Management Science, 60 (2014), 2114-2137. 

[9]

M. Liu and E. Cao, Pricing strategies of a dual-channel supply chain with risk aversion, Transportation Research Part E, 90 (2016), 108-120.  doi: 10.1016/j.tre.2015.11.007.

[10]

Q. Liu and D. Zhang, Dynamic pricing competition with strategic customers under vertical product differentiation, Management Science, 59 (2013), 84-101.  doi: 10.1287/mnsc.1120.1564.

[11]

O. Loginova, Pricing strategies in advance selling: Should a retailer offer a pre-order price guarantee?, Review of Industrial Organization, 49 (2017), 465-489.  doi: 10.1007/s11151-016-9507-2.

[12]

O. LoginovaX.H. Wang and C. Zeng, Learning in advance selling with heterogeneous consumers, Managerial and Decision Economics, 38 (2017), 765-783. 

[13]

S. MaG. LiS. P. Sethi and X. Zhao, Advance selling in the presence of market power and risk-averse consumers, Decision Sciences, 50 (2019), 142-169.  doi: 10.1111/deci.12318.

[14]

V. MakA. RapoportE. J. Gisches and J. Han, Purchasing scarce products under dynamic pricing: An experimental investigation, Manufacturing & Service Operations Management, 16 (2014), 329-480.  doi: 10.1287/msom.2014.0480.

[15]

K. S. Moorthy and I. P. L. Png, Market segmentation, cannibalization, and the timing of product introductions, Management Science, 38 (1992), 307-458.  doi: 10.1287/mnsc.38.3.345.

[16]

H. Nair, Intertemporal price discrimination with forward-looking consumers: Application to the US market for console vedio-games, Quantitative Marketing and Economics, 5 (2007), 239-292. 

[17]

T. NoparumpaB. Kazaz and S. Webster, Wine futures and advance selling under quality uncertainty, Manufacturing & Service Operations Management, 17 (2015), 273-426.  doi: 10.1287/msom.2015.0529.

[18]

N. Osadchiy and G. Vulcano, Selling with binding reservations in the presence of strategic consumers, Management Science, 56 (2010), 2173-2190.  doi: 10.1287/mnsc.1100.1245.

[19]

A. K. Parlaktürk, The value of product variety when selling to strategic consumers, Manufacturing & Service Operations Management, 14 (2012), 371-385. 

[20]

A. PrasadK. E. Stecke and X. Zhao, Advance selling by a newsvendor retailer, Production and Operations Management, 20 (2011), 129-142. 

[21]

B.-D. Rhee, Consumer heterogeneity and strategic quality decisions, Management Science, 42 (1996), 157-306.  doi: 10.1287/mnsc.42.2.157.

[22]

M. M. H. ŞerefO. ŞerefA. Alptekinoǧlu and S. S. Erengüç, Advance selling to strategic consumers, Computational Management Science, 13 (2016), 597-626.  doi: 10.1007/s10287-016-0264-3.

[23]

G. P. Soysal and L. Krishnamurthi, Demand dynamics in the seasonal goods industry: An empirical analysis, Marketing Science, 31 (2012), 195-368.  doi: 10.1287/mksc.1110.0693.

[24]

H. ShiY. Liu and N. C. Petruzzi, Consumer heterogeneity, product quality, and distribution channels, Management Science, 59 (2013), 1162-1176.  doi: 10.1287/mnsc.1120.1604.

[25]

R. Swinney, Selling to strategic consumers when product value is uncertain: The value of matching supply and demand, Management Science, 57 (2011), 1737-1751. 

[26]

J. WuS. WangX. ChaoC. T. Ng and T. C. E. Cheng, Impact of risk aversion on optimal decisions in supply contracts, International Journal of Production Economics, 128 (2010), 569-576. 

[27]

J. Xie and S. M. Shugan, Electronic tickets, smart cards, and online prepayments: When and how to advance sell, Marketing Science, 20 (2001), 219-327.  doi: 10.1287/mksc.20.3.219.9765.

[28]

M. YuH.-S. Ahn and R. Kapuscinski, Rationing capacity in advance selling to signal quality, Management Science, 61 (2015), 560-577. 

[29]

M. YuR. Kapuscinski and H.-S. Ahn, Advance selling: Effects of interdependent consumer valuations and seller's capacity, Management Science, 61 (2015), 2100-2117.  doi: 10.1287/mnsc.2014.2047.

[30]

M. YuL. Debo and R. Kapuscinski, Strategic waiting for consumer-generated quality information: Dynamic pricing of new experience goods, Management Science, 62 (2016), 410-435. 

[31]

X. ZhaoZ. Pang and K. E. Stecke, When does a retailer's advance selling capability benefit manufacturer, retailer, or both?, Production and Operations Management, 25 (2016), 1073-1087.  doi: 10.1111/poms.12535.

show all references

References:
[1]

E. Biyalogorsky and O. Koenigsberg, The design and introduction of product lines when consumer valuations are uncertain, Production and Operations Management, 23 (2014), 1539-1548.  doi: 10.1111/poms.12167.

[2]

J. Chevalier and A. Goolsbee, Are durable goods consumers forward-looking? Evidence from college textbooks, Quarterly Journal of Economics, 124 (2009), 1853-1884. 

[3]

C. Chiu and T.-M. Choi, Supply chain risk analysis with mean-variance models: A technical review, Annals of Operations Research, 240 (2016), 489-507.  doi: 10.1007/s10479-013-1386-4.

[4]

S.-H. Cho and C. S. Tang, Advance selling in a supply chain under uncertain supply and demand, Manufacturing & Service Operations Management, 15 (2013), 305-319. 

[5]

K.-L. HuangC.-W. Kuo and H.-J. Shih, Advance selling with freebies and limited production capacity, Omega, 73 (2017), 18-28.  doi: 10.1016/j.omega.2016.12.002.

[6]

W. JinJ. Luo and Q. Zhang, Optimal ordering and financing decisions under advance selling and delayed payment for a capital-constrained supply chain, Journal of the Operational Research Society, 69 (2018), 1978-1993.  doi: 10.1080/01605682.2017.1415643.

[7]

C. Li and F. Zhang, Advance demand information, price discrimination, and preorder strategies, Manufacturing & Service Operations Management, 15 (2013), 1-163.  doi: 10.1287/msom.1120.0398.

[8]

J. LiN. Granados and S. Netessine, Are consumers strategic? Structural estimation from the air-travel industry, Management Science, 60 (2014), 2114-2137. 

[9]

M. Liu and E. Cao, Pricing strategies of a dual-channel supply chain with risk aversion, Transportation Research Part E, 90 (2016), 108-120.  doi: 10.1016/j.tre.2015.11.007.

[10]

Q. Liu and D. Zhang, Dynamic pricing competition with strategic customers under vertical product differentiation, Management Science, 59 (2013), 84-101.  doi: 10.1287/mnsc.1120.1564.

[11]

O. Loginova, Pricing strategies in advance selling: Should a retailer offer a pre-order price guarantee?, Review of Industrial Organization, 49 (2017), 465-489.  doi: 10.1007/s11151-016-9507-2.

[12]

O. LoginovaX.H. Wang and C. Zeng, Learning in advance selling with heterogeneous consumers, Managerial and Decision Economics, 38 (2017), 765-783. 

[13]

S. MaG. LiS. P. Sethi and X. Zhao, Advance selling in the presence of market power and risk-averse consumers, Decision Sciences, 50 (2019), 142-169.  doi: 10.1111/deci.12318.

[14]

V. MakA. RapoportE. J. Gisches and J. Han, Purchasing scarce products under dynamic pricing: An experimental investigation, Manufacturing & Service Operations Management, 16 (2014), 329-480.  doi: 10.1287/msom.2014.0480.

[15]

K. S. Moorthy and I. P. L. Png, Market segmentation, cannibalization, and the timing of product introductions, Management Science, 38 (1992), 307-458.  doi: 10.1287/mnsc.38.3.345.

[16]

H. Nair, Intertemporal price discrimination with forward-looking consumers: Application to the US market for console vedio-games, Quantitative Marketing and Economics, 5 (2007), 239-292. 

[17]

T. NoparumpaB. Kazaz and S. Webster, Wine futures and advance selling under quality uncertainty, Manufacturing & Service Operations Management, 17 (2015), 273-426.  doi: 10.1287/msom.2015.0529.

[18]

N. Osadchiy and G. Vulcano, Selling with binding reservations in the presence of strategic consumers, Management Science, 56 (2010), 2173-2190.  doi: 10.1287/mnsc.1100.1245.

[19]

A. K. Parlaktürk, The value of product variety when selling to strategic consumers, Manufacturing & Service Operations Management, 14 (2012), 371-385. 

[20]

A. PrasadK. E. Stecke and X. Zhao, Advance selling by a newsvendor retailer, Production and Operations Management, 20 (2011), 129-142. 

[21]

B.-D. Rhee, Consumer heterogeneity and strategic quality decisions, Management Science, 42 (1996), 157-306.  doi: 10.1287/mnsc.42.2.157.

[22]

M. M. H. ŞerefO. ŞerefA. Alptekinoǧlu and S. S. Erengüç, Advance selling to strategic consumers, Computational Management Science, 13 (2016), 597-626.  doi: 10.1007/s10287-016-0264-3.

[23]

G. P. Soysal and L. Krishnamurthi, Demand dynamics in the seasonal goods industry: An empirical analysis, Marketing Science, 31 (2012), 195-368.  doi: 10.1287/mksc.1110.0693.

[24]

H. ShiY. Liu and N. C. Petruzzi, Consumer heterogeneity, product quality, and distribution channels, Management Science, 59 (2013), 1162-1176.  doi: 10.1287/mnsc.1120.1604.

[25]

R. Swinney, Selling to strategic consumers when product value is uncertain: The value of matching supply and demand, Management Science, 57 (2011), 1737-1751. 

[26]

J. WuS. WangX. ChaoC. T. Ng and T. C. E. Cheng, Impact of risk aversion on optimal decisions in supply contracts, International Journal of Production Economics, 128 (2010), 569-576. 

[27]

J. Xie and S. M. Shugan, Electronic tickets, smart cards, and online prepayments: When and how to advance sell, Marketing Science, 20 (2001), 219-327.  doi: 10.1287/mksc.20.3.219.9765.

[28]

M. YuH.-S. Ahn and R. Kapuscinski, Rationing capacity in advance selling to signal quality, Management Science, 61 (2015), 560-577. 

[29]

M. YuR. Kapuscinski and H.-S. Ahn, Advance selling: Effects of interdependent consumer valuations and seller's capacity, Management Science, 61 (2015), 2100-2117.  doi: 10.1287/mnsc.2014.2047.

[30]

M. YuL. Debo and R. Kapuscinski, Strategic waiting for consumer-generated quality information: Dynamic pricing of new experience goods, Management Science, 62 (2016), 410-435. 

[31]

X. ZhaoZ. Pang and K. E. Stecke, When does a retailer's advance selling capability benefit manufacturer, retailer, or both?, Production and Operations Management, 25 (2016), 1073-1087.  doi: 10.1111/poms.12535.

Figure 1.  Sequence of events
Figure 2.  Value of rationing
Figure 3.  Value of flexibility on quality choice
Figure 4.  Value of flexibility on quality choice when capacity rationing is prohibited
Figure A1.  Sketch of $ \Pi_{q}^{C}(S_{q}) $ for $ T\leq\frac{N}{3} $
Figure A2.  Sketch of $ \Pi_{q}^{C}(S_{q}) $ for $ \frac{N}{3}<T\leq\frac{N}{2} $ and $ N_{1}\leq\frac{3T-N}{2} $
Figure A3.  Sketch of $ \Pi_{q}^{C}(S_{q}) $ for $ \frac{N}{3}<T\leq\frac{N}{2} $ and $ \frac{3T-N}{2}<N_{1}\leq\overline{N}_{1} $
Figure A4.  Sketch of $ \Pi_{q}^{C}(S_{q}) $ for $ \frac{N}{3}<T\leq\frac{N}{2} $ and $ N_{1}>\overline{N}_{1} $
Figure A5.  Sketch of $ \Pi_{q}^{C}(S_{q}) $ for $ \frac{N}{2}<T\leq\overline{T} $ and $ N_{1}\leq\frac{3T-N}{2} $
Figure A6.  Sketch of $ \Pi_{q}^{C}(S_{q}) $ for $ \frac{N}{2}<T\leq\overline{T} $ and $ \frac{3T-N}{2}<N_{1}\leq\overline{N}_{1} $
Figure A7.  Sketch of $ \Pi_{q}^{C}(S_{q}) $ for $ \frac{N}{2}<T\leq\overline{T} $ and $ N_{1}>\overline{N}_{1} $
Figure A8.  Sketch of $ \Pi_{q}^{C}(S_{q}) $ for $ T>\overline{T} $
[1]

Ying Li, Miyuan Shan, Michael Z.F. Li. Advance selling decisions with overconfident consumers. Journal of Industrial and Management Optimization, 2016, 12 (3) : 891-905. doi: 10.3934/jimo.2016.12.891

[2]

Gang Chen, Zaiming Liu, Jingchuan Zhang. Analysis of strategic customer behavior in fuzzy queueing systems. Journal of Industrial and Management Optimization, 2020, 16 (1) : 371-386. doi: 10.3934/jimo.2018157

[3]

Kai Li, Tao Zhou, Bohai Liu. The comparison between selling and leasing for new and remanufactured products with quality level in the electric vehicle industry. Journal of Industrial and Management Optimization, 2021, 17 (3) : 1505-1529. doi: 10.3934/jimo.2020032

[4]

Sheng Zhu, Jinting Wang. Strategic behavior and optimal strategies in an M/G/1 queue with Bernoulli vacations. Journal of Industrial and Management Optimization, 2018, 14 (4) : 1297-1322. doi: 10.3934/jimo.2018008

[5]

Gopinath Panda, Veena Goswami. Effect of information on the strategic behavior of customers in a discrete-time bulk service queue. Journal of Industrial and Management Optimization, 2020, 16 (3) : 1369-1388. doi: 10.3934/jimo.2019007

[6]

Thomas Demoor, Joris Walraevens, Dieter Fiems, Stijn De Vuyst, Herwig Bruneel. Influence of real-time queue capacity on system contents in DiffServ's expedited forwarding per-hop-behavior. Journal of Industrial and Management Optimization, 2010, 6 (3) : 587-602. doi: 10.3934/jimo.2010.6.587

[7]

Kevin Kuo, Phong Luu, Duy Nguyen, Eric Perkerson, Katherine Thompson, Qing Zhang. Pairs trading: An optimal selling rule. Mathematical Control and Related Fields, 2015, 5 (3) : 489-499. doi: 10.3934/mcrf.2015.5.489

[8]

Kun Hu, Yuanshi Wang. Dynamics of consumer-resource systems with consumer's dispersal between patches. Discrete and Continuous Dynamical Systems - B, 2022, 27 (2) : 977-1000. doi: 10.3934/dcdsb.2021077

[9]

Ganfu Wang, Xingzheng Ai, Chen Zheng, Li Zhong. Strategic inventory under suppliers competition. Journal of Industrial and Management Optimization, 2020, 16 (5) : 2159-2173. doi: 10.3934/jimo.2019048

[10]

Robert Stephen Cantrell, Chris Cosner, Shigui Ruan. Intraspecific interference and consumer-resource dynamics. Discrete and Continuous Dynamical Systems - B, 2004, 4 (3) : 527-546. doi: 10.3934/dcdsb.2004.4.527

[11]

Kai Zehmisch. The codisc radius capacity. Electronic Research Announcements, 2013, 20: 77-96. doi: 10.3934/era.2013.20.77

[12]

Benny Avelin, Tuomo Kuusi, Mikko Parviainen. Variational parabolic capacity. Discrete and Continuous Dynamical Systems, 2015, 35 (12) : 5665-5688. doi: 10.3934/dcds.2015.35.5665

[13]

Lasse Kiviluoto, Patric R. J. Östergård, Vesa P. Vaskelainen. Sperner capacity of small digraphs. Advances in Mathematics of Communications, 2009, 3 (2) : 125-133. doi: 10.3934/amc.2009.3.125

[14]

Chungen Liu, Qi Wang. Symmetrical symplectic capacity with applications. Discrete and Continuous Dynamical Systems, 2012, 32 (6) : 2253-2270. doi: 10.3934/dcds.2012.32.2253

[15]

Junichi Minagawa. On the uniqueness of Nash equilibrium in strategic-form games. Journal of Dynamics and Games, 2020, 7 (2) : 97-104. doi: 10.3934/jdg.2020006

[16]

Nickolas J. Michelacakis. Strategic delegation effects on Cournot and Stackelberg competition. Journal of Dynamics and Games, 2018, 5 (3) : 231-242. doi: 10.3934/jdg.2018015

[17]

Misha Perepelitsa. A model of cultural evolution in the context of strategic conflict. Kinetic and Related Models, 2021, 14 (3) : 523-539. doi: 10.3934/krm.2021014

[18]

Xiaoxi Zhu, Kai Liu, Miaomiao Wang, Rui Zhang, Minglun Ren. Product line extension with a green added product: Impacts of segmented consumer preference on supply chain improvement and consumer surplus. Journal of Industrial and Management Optimization, 2022  doi: 10.3934/jimo.2022021

[19]

Jingming Pan, Wenqing Shi, Xiaowo Tang. Pricing and ordering strategies of supply chain with selling gift cards. Journal of Industrial and Management Optimization, 2018, 14 (1) : 349-369. doi: 10.3934/jimo.2017050

[20]

Shuren Liu, Qiying Hu, Yifan Xu. Optimal inventory control with fixed ordering cost for selling by internet auctions. Journal of Industrial and Management Optimization, 2012, 8 (1) : 19-40. doi: 10.3934/jimo.2012.8.19

2020 Impact Factor: 1.801

Metrics

  • PDF downloads (294)
  • HTML views (706)
  • Cited by (0)

Other articles
by authors

[Back to Top]