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Recent empirical studies indicate that improvements in product conformance quality exhibit learning-by-doing patterns. We address quality improvement in a competitive duopoly market for partially substitutable products characterized by levels of quality that are not necessarily identical. The products’ quality is described with a hazard rate that can be improved both by accumulating production experience (autonomous learning) and quality improvement efforts (induced learning). Given that defective items are fully reimbursable and the demands exhibit increasing returns to scale, we derive Nash equilibrium pricing and induced learning effort dynamic policies. We show that when the effectiveness of autonomous learning prevails over the effectiveness of efforts in induced learning, equilibrium prices gradually grow over time; the trend is quite the opposite when autonomous learning is less effective than induced learning.

This paper investigates how current and future generations are affected by commitment-based Nash equilibrium environmental strategies when the environmental absorption efficiency is susceptible to switch from a pollution sink to a source. We formulate a two-player differential game model of transboundary pollution that includes the environmental absorption efficiency as a state variable that can be enhanced thanks to restoration efforts. Based on a logarithmic specification for the instantaneous revenue function, we characterize the cooperative solution and the commitment-based Nash equilibrium strategy, and examine their differences in terms of steady state and transient behavior. We notably show that a commitment-based Nash equilibrium strategy makes it possible to prevent a definitive switching of the environmental absorption efficiency from a pollution sink to a source but imposes greater economic sacrifices on current generations than on future generations. In comparison, the cooperative solution imposes greater sacrifices on current generations in terms of revenues but it imposes lower environmental costs on both current and future generations than commitment-based Nash equilibrium strategy.

"Learning by doing", in which unit production costs decrease with cumulative production experience, is extensively observed in economies of scale. It has been shown that, in the case of mature technologies, learning curves exhibit a linear behavior in cumulative production. In this paper we consider two competing firms that produce fully substitutable products and whose experience levels have a linear effect on their unit production costs. We assume that production experience is affected by random causes, and that the learning process may involve spillovers of experience from the competing firm. As in the Cournot competition, in this differential game the firms compete by choosing the quantities of products that they will produce. In contrast to the Cournot assumption, according to which firms maximize their profits by taking as given the quantity produced by the competitor, we assume that a firm may not be able to determine its competitor's reaction to a change in its output and instead may conjecture the competitor's response. We find that, in contrast to the case of a steady state, an open-loop equilibrium over a finite planning horizon may result in greater output (more competitive behavior) compared with a subgame-perfect equilibrium. We show that this result is due to the fact that strategic behavior in feedback Nash equilibrium depends on the relationship between the level of proprietary learning by doing (which encourages strategic complementarity) and the level of spillovers (which involves strategic substitutability).

This paper seeks to determine how the double marginalization phenomenon affects the tradeoff between polluting emissions and abatement activities related to pollution accumulation in a supply chain composed of one manufacturer and one retailer. The environmental consequence of this inefficiency, which emerges in a non-cooperative vertical setting governed by a single-parameter contract, is overlooked in the literature on pollution control. In the setup of a two-stage game, we investigate the impact of double marginalization for non-cooperative equilibrium. To check whether there are differences between dynamic and strategic effects of double marginalization on pollution accumulation, both the open-loop and feedback Nash equilibria are derived over a finite time horizon, with the cooperative solution as a benchmark.

The paper investigates the extent to which capacity investment considerations interact with the double marginalization effect in a simple supply chain governed by a wholesale price contract. To do so, a non-cooperative differential game model is formulated to study the pricing and capacity investment decisions in a supply chain, which consists of a supplier and a manufacturer. In such a game, there are different decision rules—open-loop, closed-loop, feedback—that are available to the supply chain participants, depending on the observability of the current state of the supply chain. While closed-loop and feedback equilibrium strategies involve the observability of other chain member’s production capacity, open-loop equilibrium strategies do not have such requirement. We examine how the supplier and the manufacturer determine, with the different decision rules, their production capacities and pricing policies to maximize their profits over an infinite planning horizon, and determine how the observability of other supply chain’s members’ production capacity affects the magnitude of the double marginalization effect. Our study suggests that the observability of other chain member’s current production capacity entails a lower production efficiency that results in a greater double marginalization effect. This allows us to conclude that observability of other chain member’s current production capacity is associated with a greater double marginalization effect.

One of the main priorities of companies involved in supply chains is improving the quality of their products. However, as in other parts of supply chain management, decentralized decision-making in supply quality management is prevalent, which causes inefficiencies such as the well-known double marginalization phenomenon. Coordinating schemes, such as the revenue sharing contract, can contribute to mitigating this phenomenon. In this paper, we investigate the potential coordinating power of the revenue sharing contract in a supply chain with one manufacturer and one supplier that collaborate to improve the design quality of a particular finished product. We set the cooperative outcome as a benchmark and compare the efficiency of an optimal revenue sharing contract with an optimal wholesale price contract in improving design quality in the setup of a non-cooperative two-stage game.

This paper analyzes the consequences of allowing for punishment in a real-effort pair production experiment. The behavior of the best performer in the team differs on whether he or she can impose a sanction on the less performing partner. When sanctions are not allowed, good performers reduce their effort in response to the advantageous difference in scores; when they can impose sanctions, their change in effort is no longer related to the difference in scores. To some extent, a sanction mechanism allows good performers to focus on their own performance. In the case of costless sanctions, not sanctioning a partner who under-performs, what we refer to as forgiveness, prompts the latter to improve his or her performance, but applying the sanction has a stronger push effect. Copyright © 2014 John Wiley & Sons, Ltd.

This paper analyzes how faculty members dynamically allocate their efforts between improving their research and teaching skills, taking into account the organizational structures and incentives implemented by academic institutions. The model builds on the assumption that organizational structures have an impact on the nature of spillover effects between teaching and research competencies. We analyze the dynamic equilibrium under unilateral and bilateral spillovers, using the no-spillover case as a benchmark. The bilateral spillover case is the most appealing as it achieves the highest overall performance; however, the nature of the equilibrium and the career paths can be quite different depending on the parameters of the problem such as the obsolescence of competencies or the strength of the spillover effect. This finding provides interesting insights on what could be the most productive configuration of a higher education institution.

This paper investigates the research and development accumulation and pricing strategies of two firms competing for consumer demand in a dynamic framework. A firm's research and development is production-cost-reducing and can benefit from part of the competitor's research and development stock without payment. We consider decisions in a game characterized by Nash equilibrium. In this dynamic game, a player's action depends on whether the competitor's current research and development stock are observable. If the competitor's current research and development stock are not observable or observable only after a certain time lag, a player's action can be solely based on the information on the current period t (open-loop strategy). In the converse case, it can also include the information on the competitor's reaction to a change in the current value of the state vector (closed-loop strategy), which allows for strategic interaction to take place throughout the game. Given the cumulative nature of research and development activities, a primary goal of this paper is to determine whether, regardless of the observability of the competitor's current research and development stock, free research and development spillovers generate a lower level of scientific knowledge than research and development appropriability. A second objective of the paper is to determine how the observability of the rival's current research and development stock affects a firm's research and development and pricing decisions and payoffs under imperfect research and development appropriability.

The paper considers a dynamic game with a single manufacturer who supplies two retailers. The manufacturer determines his production rate of a specific product, the rate of quality improvement efforts as well as the rate of advertising for the product. Each retailer controls her purchasing rate and the consumer sales price. Payments from a retailer to the manufacturer are determined by a wholesale price or a revenue-sharing scheme. The retailers operate in the same consumer market in which they compete in prices for the consumer demand. Nash equilibrium conditions are derived and numerical methods are employed to characterize equilibrium behavior of the players in a differential game of fixed and finite duration.

This article examines a case where the demand of a new product follows an applied diffusion model influenced by innovation and price differential effects, and the potential market size expands as the technology level embodied in the product advances. For a duopoly, we set up a differential game model and derived open-loop Nash equilibrium solutions, showing that the optimal dynamics between the competitors' technology and price levels depend on the relative magnitude of innovation and price differential coefficients. If the price differential coefficients of the two competitors are symmetrical, the optimal prices become constant and in general the technology levels increase.

The objective of the paper is to study how wholesale price and revenue sharing contracts affect operations and marketing decisions in a supply chain under different dynamic informational structures. We suggest a differential game model of a supply chain consisting of a manufacturer and a single retailer that agree on the contract parameters at the outset of the game. The model includes key operational and marketing activities related to a single product in the supply chain. The manufacturer sets a production rate and the rate of advertising efforts while the retailer chooses a purchase rate and the consumer price. The state of the game is summarized in the firms’ backlogs and the manufacturer’s advertising goodwill. Depending on whether the supply chain members have and share state information, they may either make decisions contingent on the current state of the game (feedback Nash strategy), or precommit to a plan of action during the whole game (open-loop Nash strategy). Given a contract type, the impact of the availability of information regarding the state of the game on the firms’ decisions and payoffs is investigated. It is shown that double marginalization can be better mitigated if the supply chain members adopt a contingent strategy under a wholesale price contract and a commitment strategy under a revenue sharing contract.

OS; International audience; We study an optimal AK-like model of capital accumulation and growth in the presence of a negative environmental externality in the tradition of Stokey (Int Econ Rev 39(1):1–31, 1998). Both production and consumption activities generate polluting waste. The economy exerts a recycling effort to reduce the stock of waste. Recycling also generates income, which is fully devoted to capital accumulation. The whole problem amounts to choosing the optimal control paths for consumption and recycling to maximize a social welfare function that notably includes the waste stock and disutility from the recycling effort. We provide a mathematical analysis of both the asymptotic behavior of the optimal trajectories and the shape of transition dynamics. Numerical exercises are performed to illustrate the analysis and to highlight some of the economic implications of the model. The results suggest that when recycling acts as an income generator, (1) a contraction of both the consumption and capital stock is observed in the long run after an expansion phase; (2) whether polluting waste is predominantly due to production or consumption, greater consumption and lower capital stock are obtained in the long run compared with the situation when recycling does not create additional income; (3) greater recycling effort and lower stock of waste are resulted in the long run.

This paper analyzes how faculty members dynamically allocate their efforts between improving their research and teaching skills, taking into account the organizational structures and incentives implemented by academic institutions. The model builds on the assumption that organizational structures have an impact on the nature of spillover effects between teaching and research competencies. We analyze the dynamic equilibrium under unilateral and bilateral spillovers, using the no-spillover case as a benchmark. The bilateral spillover case is the most appealing as it achieves the highest overall performance; however, the nature of the equilibrium and the career paths can be quite different depending on the parameters of the problem such as the obsolescence of competencies or the strength of the spillover effect. This finding provides interesting insights on what could be the most productive configuration of a higher education institution.