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Problem definition: We study a ridesharing platform’s optimal bonus-setting decisions for capacity and profit maximization problems in which drivers set daily income targets. Academic and Practical Relevance: Sharing-economy companies have been providing monetary rewards to incentivize self-scheduled drivers to work longer. We study the effectiveness of the monetary bonus scheme in the context of the ridesharing industry, where the drivers are highly heterogeneous and set income targets. Methodology: We model a driver’s decision-making processes and the platform’s optimization problem as a Stackelberg game. Then, utilizing comprehensive datasets obtained from a leading ridesharing platform, we develop a novel empirical strategy to provide evidence on the existence of drivers’ income-targeting behavior through a reduced-form and structural analysis. Furthermore, we perform a counterfactual analysis to calculate the optimal bonus rates for different scenarios by using the characteristics of heterogeneous drivers derived from the estimation outcomes. Results: Our theoretical model suggests that the drivers’ working hours do not increase monotonically with the bonus rate under the target effect and that the platform may not use all its budget on bonuses to maximize capacity or profit. We empirically demonstrate that the drivers engage in income-targeting behavior, and furthermore, we estimate the income targets for heterogeneous drivers. Through counterfactual analysis, we illustrate how the optimal bonus scheme varies when the platform faces different driver compositions and market conditions. We also find that, compared with the platform’s previous bonus setting, the optimal bonus strategy improves the capacity level during peak hours by as much as 26%, boosting the total profit by $4.3 million per month. Managerial implications: It is challenging to develop a flexible self-scheduled supply of drivers that can match the ever-changing demand and maintain the market share of the ridesharing platform. When offering monetary bonuses to incentivize drivers to work longer, the drivers’ income-targeting behavior can undermine the effectiveness of such bonus schemes. The platform needs to understand the heterogeneity of drivers’ behavioral preferences regarding monetary rewards to design an effective bonus strategy.

We study a transportation network company (TNC) that offers on-demand solo and pooling e-hail services in an aggregate mobility service market, while competing with transit for passengers. The market equilibrium is established based on a spatial driver–passenger matching model that determines the passenger wait time for both solo and pooling rides. We prove, under mild conditions, this system always has an equilibrium solution. Built on the market equilibrium, three variants of pricing problems are analyzed and compared, namely, (i) profit maximization, (ii) profit maximization subject to regulatory constraints, and (iii) social welfare maximization subject to a revenue-neutral constraint. A comprehensive case study is constructed using TNC data collected in the city of Chicago. We found pooling is desirable when demand is high but supply is scarce. However, its benefit diminishes quickly as the average en-route detour time (i.e., the difference between the average duration of solo and pooling trips) increases. Without regulations, a mixed strategy—providing both solo and pooling rides—not only achieves the highest profit and trip production in most scenarios, but also gains higher social welfare. The minimum wage policy can improve social welfare in the short term. However, in the long run, the TNC could react by limiting the size of the driver pool, and consequently, render the policy counterproductive, even pushing social welfare below the unregulated level. Moreover, by maintaining the supply and demand of ride-hail at an artificially high level, the minimum wage policy tends to exacerbate traffic congestion by depressing the use of collective modes (transit and pooling). A congestion tax policy that penalizes solo rides promotes pooling, but may harm social welfare. However, it promises to increase both social welfare and pooling ratio when jointly implemented with the minimum wage policy.

Celem niniejszego artykułu jest analiza zmian legislacyjnych dotyczących problematyki opłaty stosunkowej w kontekście dobrowolności spełnienia świadczenia przez dłużnika w trakcie trwającego już postępowania egzekucyjnego. Analiza została przeprowadzona na podstawie wybranych aspektów ekonomicznych. Akcent w pracy położony został zarówno na kontekst rozwojowy danej instytucji, jak i na wybraną przez autora metodę jej analizy — ekonomiczną analizę prawa. Posługując się pewnymi założeniami ekonomicznymi (racjonalność wyboru, minimalizacja kosztów, założenie ceteris paribus), dokonano próby oceny instytucji prawnej pod kątem jej efektywności ekonomicznej w ogólności oraz w ujęciu jednostkowym. Analiza regulacji prawnej związana z naliczaniem opłaty stosunkowej w dobrowolnym spełnieniu świadczenia przez dłużnika umożliwia wskazanie różnego rodzaju alternatyw decyzyjnych przysługujących osobie dłużnika i wybranie wariantu, który powinien spełniać następujące kryteria: maksymalizować zysk oraz minimalizować straty podmiotu zainteresowanego.

We propose a framework to find optimal price-based policies to regulate markets characterized by oligopolistic competition and in which consumers make a discrete choice among a finite set of alternatives. The framework accommodates general discrete choice models available in the literature in order to capture heterogeneous consumer behavior. In our work, consumers are utility maximizers and are modeled according to random utility theory. Suppliers are modeled as profit maximizers, according to the traditional microeconomic treatment. Market competition is modeled as a non-cooperative game, for which an approximate equilibrium solution is sought. Finally, the regulator can affect the behavior of all other agents by giving subsidies or imposing taxes to consumers. In transport markets, economic instruments might target specific alternatives, to reduce externalities such as congestion or emissions, or specific segments of the population, to achieve social welfare objectives. In public policy, different agents have different individual or social objectives, possibly conflicting, which must be taken into account within a social welfare function. We present a mixed integer optimization model to find optimal policies subject to supplier profit maximization and consumer utility maximization constraints. Then, we propose a model-based heuristic approach based on the fixed-point iteration algorithm that finds an approximate equilibrium solution for the market. Numerical experiments on an intercity travel case study show how the regulator can optimize its decisions under different scenarios.

Aiming at the two-echelon newsvendor problem in which the market demand of commodities is random both in normal sales period and in liquidation period, this paper studies the pricing and ordering decision of retailers by using rational expectation equilibrium under the condition of considering consumersʼ strategic behavior and rapid response mechanism. Then, the decision-making problem under retailersʼ initial order quantity commitment is discussed, as well as the effect of commitment mechanism on supply chain performance. On this basis, both the two-part pricing contract and revenue-sharing contract are introduced to achieve supply chain coordination aiming at the profit maximization under the initial order quantity commitment mechanism. The results show that the rapid response mechanism can reduce the negative impact of consumers’ strategic behavior, and the initial order quantity commitment can further reduce the impact and improve the retailers’ profit. Both the two-part pricing contract and revenue-sharing contract can coordinate the whole supply chain in which the two-part pricing contract can distribute profit arbitrarily between manufacturers and retailers while the revenue-sharing contract can share risks among members of the supply chain.

Theoretically, producer behavior models postulate that firms have had different objectives ranging from profit maximization to setting aspirational levels. The assumption of the objective of profit maximization was shaped based on the rationality principles, which has lost relevance with the coming of the principle of behavioral economics in recent time. The present paper intends to throw some light on changes that have been made in the objective of firms over years and attempts to review some models emphasizing managerial utility as the core objective of firms.

Tanulmányunkban bemutattuk a kozmetikai piacra jellemző fogyasztói döntéshozatalt mikro- és makroökonómiai szempontból, illetve a kozmetikai piacok főbb jellemzőit, a globális, nemzetközi kozmetikai piacokat, illetve a hazai kozmetikai termékeladást, a kozmetikumok vásárlására ható tényezők, trendek hatását a kozmetikumok vásárlására. A fogyasztói döntéshozatal közgazdasági értelemben a haszonmaximalizálásra, illetőleg a kockázatminimalizálásra törekszik. A fogyasztó objektíven dönt, teljes körűen informált a kozmetikai piaccal, a kapható kozmetikai termékekkel, illetve igénybe vehető kozmetikai szolgáltatásokkal kapcsolatban, választásakor racionális és szuverén módon cselekszik, vagyis következetes döntéshozatallal választja ki a kozmetikai piacokon megtalálható jószágokat, jószágcsoportokat kombinálva fogyasztói kosarában törekedve hasznosságának maximalizálására. In this study, the micro- and macroeconomic aspects of consumer decision making in the cosmetic market, the main characteristics of cosmetic markets, the global and international cosmetic markets, the sales records of products in the domestic market, as well as the effects of the factors and trends affecting the purchase of cosmetic products were introduced. Consumer decision making in economic terms seeks profit maximization and risk minimization. Consumers make unprejudiced decisions and they are fully informed about the cosmetics market and available cosmetic products and services. Decision making is rational and is conducted independently, which meanas that consumers choose and select goods consistently, combining groups of goods in order to maximize their usefulness.

This paper extends the analysis of the effects of corporate social responsibility in a bilateral monopoly to the case where a manufacturer and a retailer engaged in a supply chain face competition from a vertically integrated firm. The paper finds that when the manufacturer and the retailer non-cooperatively select their degrees of social concern, they choose to pursue pure profit maximization, irrespective of the order in which they make their choices. These choices put them at a disadvantage with respect to their vertically integrated competitor, who produces more output than they do and obtains higher profits than their joint profits. The paper then shows that when they cooperatively choose their degrees of social concern, they both choose positive degrees of social concern and, therefore, deviate from pure profit maximization. These choices give them a competitive edge over their vertically integrated rival: they produce a higher output and obtain higher joint profits than their competitor. In comparison with the non-cooperative outcome, the positive degrees of social concern cooperatively chosen by the manufacturer and the retailer imply higher output and profits for the retailer and the manufacturer and lower output and profits for their competitor. They also imply lower prices and higher consumer surplus and social welfare.

Environment protection and green development is of great importance. Therefore, this paper attempts to propose an environmentally friendly and sustainable development model that depends on environmental economics and game theory. This paper employs an analytical approach to show that the effects of carbon tax on environment regulation in case of the duopoly market structure. Some interesting conclusions are obtained. Firstly, factors affecting carbon tax, such as the importance of environment to the government, are captured. Secondly, this paper shows that low efficiency firm has more stimulation to reduce product substitutability and more motivation to practice product efficiency improving innovations. Thirdly, optimal carbon tax is compared between tax on energy input and unit carbon tax. The results show that unit tax is lower than energy input tax under optimal condition. More importantly, the numeric results of the paper clearly demonstrate that those countries committed to environment prefer input tax since it is more efficient in reducing energy consumption, while a profit maximization approach leads to the unit carbon tax. The findings of this paper can be helpful to those who are responsible for the environment and sustainable progress.

PurposeThe purpose of this paper is to examine the optimizing behavior of agricultural supply and marketing cooperatives in the US Midwestern states.Design/methodology/approachThis paper uses firm-level data from CoBank, the primary lender to agricultural cooperatives, to evaluate optimizing behavior of 77 Midwestern agricultural marketing and supply cooperatives from 2014 through 2017. The study uses the data envelopment analysis (DEA) and the weak axioms of cost minimization and profit maximization to identify whether or not a cooperative is following a cost minimization and/or profit maximization objective.FindingsIn contrast to previous research, results provide stronger support for profit maximization as the behavioral objective of agricultural cooperatives instead of cost minimization, especially for larger cooperatives.Practical implicationsTraditional firm theory for investor-owned firms states that businesses seek to maximize profits. Agricultural cooperatives however, could aim to maximize profits so as to redistribute profits back to user-owners as patronage refunds. Or, they could minimize costs so as to lower cost of products sold and services provided to their user-owners. Given users-control the cooperative, knowing the primary objective of agricultural cooperatives will allow for better design of research and education programming.Originality/valueGiven recent changes and consolidation in the agricultural industry among farms and agricultural cooperatives, this study reexamines past work that evaluated the optimizing behavior of agricultural cooperatives. Changes in industry and the necessity to remain competitive from an agribusiness standpoint have resulted in an anticipated shift toward a profit maximizing objective. The value of this study is providing an evaluation framework, using a firm-level comprehensive dataset, that represents the cooperative system.

Chinese market is relative new for fast food chains. In this article, we will explore the competition between the McDonald’s and KFC. We will review two papers, each one focusing on one different aspect of the competition mode we are studying. For the Mayer’s model, we can apply the profit’s concept into our Hotelling model. For the electoral vote model, we can incorporate the concept of market share. We will try to quantify the variables involved in the real world fast food market. We will assume an imaginary line of positions for the firms to choose. Then, in the section of Theoretical Nash Equilibrium, we will try to solve the strategic setting and apply the principles further in the extensions. Finally we will find empirical evidence, which conforms perfectly to our propositions. To sum up, we propose that KFC and McDonald’s clustering at the center are of reason, generating maximum profit and market share, creating a stable Nash Equilibrium.

The goal of this monograph is to very concisely outline the economic theory foundations and trends of the field of Effciency and Productivity Analysis, also sometimes referred to as Performance Analysis. I start with the profit maximization paradigm of mainstream economics, use it to derive a general profit effciency measure and then present its special cases: revenue maximization and revenue effciency, cost minimization and cost effciency. I then consider various types of technical and allocative effciencies (directional and Shephard’s distance functions and related Debreu–Farrell measures as well as non-directional measures of technical effciency), showing how they fit into or decompose the profit maximization paradigm. I then cast the effciency and productivity concepts in a dynamic perspective that is frequently used to analyze the productivity changes of economic systems (firms, hospitals, banks, countries, etc.) over time. I conclude this monograph with an overview of major results on aggregation in productivity and effciency analysis, where the aggregate productivity and effciency measures are theoretically connected to their individual analogues.

To measure how moral behaviour interacts with pricing regimes, we conduct highly controlled experiments in which trading creates pollution. We compare indirect pricing (here, a cap and trade mechanism) and direct pricing (a tax) in an otherwise equivalent setting in which 'producers' are incentivized to emit CO2. 'Judges' decide on central trading parameters that may restrict socially harmful activities. Profit maximization predicts the same producer behaviour in either setting in the absence of regulation, yet we find a substantial share of producers refraining from emitting CO(2)at all. Although judges restrict behaviour in similar ways across mechanisms, direct pricing more effectively accommodates moral behaviour than the quantity policy.Moral concerns matter for decisions in markets where activities generate negative externalities such as pollution emissions. With controlled experiments in which trading creates pollution, this study shows that a large portion of producers refrain from polluting even at the cost of forgoing profits.

We hypothesize that upward social comparison of asset holdings among traders exacerbates leveraged asset bubbles because traders shift their frame of reference from profit maximization toward quant...

This study provides a better explanation for the continued prevalence of high–low (Hi–Lo) pricing strategy. We investigate the impact of market competition on adopting two different pricing strategies in the retail industry: everyday low price (EDLP) strategy and Hi–Lo strategy. We developed two analytic models using a game‐theoretic modeling approach: the profit maximization model and the sales revenue maximization model. We then conducted an econometric analysis based on retail store‐level dataset. The result shows that an EDLP player's equilibrium price depends highly on the cost level rather than competitor's price whereas the Hi–Lo player's equilibrium price depends mainly on the range of promotional basket as well as the cost level.

Standard models of indirect price discrimination generate a separating equilibrium in which all consumers choose bundles on their demand curves. Low-demand consumers voluntarily choose to pay a higher unit price for small quantities because the discount is offered by the monopolist at prohibitively high quantity. These models implicitly assume the low-demand consumer would purchase the higher quantity at the discounted price if the quantity requirement were set at a low quantity, but rational monopoly pricing avoids this. We show that it is possible for a monopolist to offer price/quantity bundles that induce each consumer to choose voluntarily the one preferred by the monopolist for her where each bundle is above the respective consumer’s demand curve. The primary theoretical results include greater profits for the firm and greater total efficiency as output more closely approaches the socially optimal level in both market segments. Resolving an ambiguity from earlier research on price discrimination, the model also unequivocally demonstrates that consumer surplus is reduced. An important implication of the monopolist constraining consumption to be above the demand curve for her product is that she has effectively reduced the demand for some subset of other goods and services the consumers purchase.

We consider a profit maximization model for a trading company taking into account the intensity of the sale of goods and the costs of purchase, delivery, storage and sale, as well as the possibility of alternative placement of free capital. We show that the profit function, depending on the period of delivery of the goods, has a single maximum point. We construct a model and develop algorithms for solving the profit maximization problem in multinomenclature systems with bounded floating capital.

The common ownership hypothesis, that the presence of diversified investors with holdings in competing firms distorts behavior away from own-firm profit maximization, has generated substantial controversy. Here, we focus on the problem of measuring common ownership. We reflect on three approaches, in order of the degree of modeling structure imposed. First, a purely descriptive summary of investor cross holdings; second, a theoretically motivated notion of “profit weights,” which captures the distortion without modeling the strategic interaction of firms; and finally, the fully structural approach, which consists of modeling both the distortions and the strategic game itself.

This paper derives firms’ desired rate of utilization from an explicit maximization of a conjectured rate of profit at the micro level. Invoking a strategic complementarity, desired utilization is thus an increasing function of not only the profit share but also the actual utilization. Drawing on recent empirical material and a straightforward functional specification, the model is subsequently numerically calibrated. In particular, this ensures a unique solution for a steady-state position in which the actual and the endogenous desired rates of utilization coincide. On the other hand, it turns out that the anticipated losses of firms by not producing at the desired level are rather small. Hence there may be only weak pressure on them to close a utilization gap in the ordinary way by suitable adjustments in fixed investment. It is indicated that this finding may serve Kaleckian economists as a more rigorous justification for viewing their equilibria as pertaining to the long run, even if they allow actual utilization to deviate persistently from desired utilization.

Economists have long been interested in why farmers decide to adopt new technologies. Modeling decision making requires modeling behavior; the key behavioral assumption is profit maximization. In addition, most empirical studies assume a binary decision—adopt or not. This paper argues that adoption should be understood as a process with multiple stages in which the final decision to use the new technology only occurs if the previous stages are completed. While profit considerations are clearly important, particularly in the later stages of the process, they need to be supplemented with other social and cognitive considerations, particularly in the early stages. Understood this way, profit maximization assumptions can provide predictions for the upper or lower bounds of adoption. The adoption rate suggested by profit maximization will be an upper bound if noneconomic factors are expected to either slow down or deter adoption, while that rate will be a lower bound if noneconomic factors are expected to encourage adoption. To capture these elements, econometric models need to pay attention to the timing of decisions and use techniques that condition later‐stage decisions on previous stage outcomes. In addition, the paper suggests the use of expert systems that have economic, learning and social aspects explicitly built into them would be valuable.

Purpose This paper aims to investigate the impacts of uncertain online reviews on product prices and profits of two competitive retailers. Design/methodology/approach First, the authors develop a game-theoretical model to determine the optimal product prices and profits considering uncertain online reviews. Afterwards, to examine the effects of the uncertain online reviews, they compare the equilibrium solutions with those of the game-theoretical models of deterministic online reviews and no online reviews, respectively. Findings Uncertain online reviews play a significant role in product price optimization and profit maximization. In the quality-dominates-fit case, both retailers will lower their product prices in response to the uncertain online reviews. And the uncertain online reviews would hurt the two retailers. Conversely, in the fit-dominates-quality case, the presence of uncertain online reviews will encourage both retailers to raise their product prices. And the two retailers can still benefit from the online reviews. With the increase in consumer uncertainty about online reviews, both retailers might raise their product prices, thus generating higher profits. Practical implications Managerially, the results indicate that in the quality-dominates-fit case, when consumers are uncertain about online reviews, it might be better for retailers to abandon the online review system; however, in the fit-dominates-quality case, both retailers could still benefit from the uncertain online reviews through product price optimization. Therefore, the presence of an online review system could be beneficial. Originality/value This paper develops a game-theoretical model to help competitive retailers optimize their price strategies and achieve profit maximization considering uncertain online reviews.

This paper presents an integrated model for time-cost competition between supply chains with heterogeneous customers. The firms in our model can offer various time options for their production/service to time-sensitive customers. This gives rise of a new concept of time-based supply chain, which we call T-chain, to be the basic element in the competition and extends the inter supply chain competition to a new dimension of time. Assuming the customers are heterogeneous in time-cost bi-criteria decision making, we integrate the discrete choice theory into supply chain network competition and formulate the equilibrium conditions as a multinomial logit based variational inequality problem. Numerical examples are presented for model illustration and managerial insights such as profit maximization for a firm who participates in this supply chain network.

In this paper the problem of the supply chain expected profit maximization under the assumption of the short-term financing necessity for one of the supply chain parties using a coordinating contract is considered. The solution is derived for a two-echelon supply chain under the assumption of product demand being distributed as uniformly. A revenue-sharing contract with bank financing and a modified revenue-sharing contract with trade credit financing are explored. It is stated that none of the studied contracts is coordinating, as they do not provide the supplier’s expected profit maximum. The conditional coordination of supply chain with a modified revenue-sharing contract with trade credit financing is considered if the supply chain and the retailer’s expected profit maximum are reached and the supplier’s expected profit is greater than in case of application of a modified wholesale price contract with trade credit financing and a revenue-sharing contract with bank financing. It is proved that it is beneficial for both supply chain parties and the problem of the supply chain expected profit maximization under the assumption of the short-term financing necessity for one of the supply chain parties can be solved using a modified revenue-sharing contract with trade credit financing.

It is demonstrated that (1) transport enterprises can operate on the market with a profit of zero and (2) they can finance their investments without profit. The rigid conditions of pure competition are not necessary. It is enough to adjust the different situations of incomplete competition by setting equal and homogeneous rules for accounting, founding and running enterprises well as financing. A special rule is to have no foreign trade. But these conditions are not stringent. There are many non-profit-enterprises in Austria and a lot of other countries which are operating without these conditions. The result is a new maxim for (transport) economics: Application of the principle of covering the costs and optimization of quality in spite of profit maximization! THE postulate to consider the quality in transport theory and policy has the same long tradition as the postulate to applicate the principle of covering the costs. The joint application will bring more benefit for realizing welfare and an equal distribution of income and property.

The stakeholder (or responsible) firm is defined in this paper as one that maximizes the (weighted or unweighted) sum of the surpluses of its customers and suppliers (including workers). We show that, although this objective is hard to empirically measure, it can be pursued by simple management rules that rely on constrained profit maximization. We find that unconstrained profit maximization gives a competitive edge to ordinary firms, but that stakeholder firms are better for social welfare and internalize several important effects of their activities on society. We also show that long term entry decisions should rely on profit modified by Pigouvian pricing of externalities, incidentally providing a novel justification for the polluter-pays principle.

Load serving entities (LSEs) maximise their profit by increasing the difference between revenue from electricity sale to consumers and the cost of procuring that electricity. Considering the offered sale prices, consumers minimise energy bills by scheduling their energy consumption. Varying spot market prices and consumer behaviour impact LSE’s electricity procurement and sale price decisions. The two conflicting objectives of LSE profit maximization and consumer cost minimization can be modelled effectively by hierarchical bi-level programming. Additionally, LSE has to consider spot market price uncertainty and renewable availability during different hours of the day. This paper considers these issues for LSE’s risk-based profit maximization decision making model under RE availability by proposing a bi-level framework to determine optimal dynamic sale prices and energy procurement decisions. The upper level considers risk-based profit maximization for LSE and the lower level addresses the consumer’s objective of cost minimization. This work considers Conditional Value at Risk (CVaR) to model spot market price risk for pragmatic characterisation of LSE’s risk-averse behaviour. A case study on the PJM market shows the effectiveness of the proposed approach.

A retailer provides products to satisfy consumers whose goodwill towards the retailer is positively correlated to the past fulfillment levels of the retailer. Consumer goodwill changes with fulfillment levels and influences the demand. The retailer makes a commitment on order quantity to suppliers who offer price discounts. This paper focuses on the decision-making problem faced by the retailer to determine the minimum commitment at the beginning of the planning horizon and ordering policies in the long run. The objective is the retailer's profit maximization. We model the problem as a stochastic dynamic programming model and solve the model with a robust optimization approach considering consumers’ goodwill. We find that all goodwill paths monotonically converge to a constant steady-state goodwill characterized by implicit equations. Moreover, if the retailer ignores long-term implications of its ordering policy, it may lose profits. In addition, the steady-state goodwill may decrease even with increased committed minimum quantity.

We design an experiment to examine the role of chat communication and side payments in facilitating collusion and fostering productive efficiency in repeated Bertrand duopoly markets. Sellers in the experiment are privately informed about their costs, which are randomly drawn every period. When side payments are feasible, theory predicts that a seller with a low cost will offer a side payment to a high cost rival for the high cost seller to stay out of the market. The low cost seller then proceeds to serve the entire market at the monopoly price, thereby achieving both joint profit maximization and productive efficiency. In the experiment, we find that prices are higher when sellers are allowed to engage in chat communication and when they choose to use side payments. However, the mere availability of the side payment option does not lead to greater collusion and side payments have a weakly positive effect on productive efficiency.

We consider the process of bidding by electricity suppliers in a day-ahead market context, where each supplier bids a linear non-decreasing function of her generating capacity with the goal of maximizing her individual profit given other competing suppliers’ bids. Based on the submitted bids, the market operator schedules suppliers to meet demand during each hour and determines hourly market clearing prices. Eventually, this game-theoretic process reaches a Nash equilibrium when no supplier is motivated to modify her bid. However, solving the individual profit maximization problem requires information of rivals’ bids, which are typically not available. To address this issue, we develop an inverse optimization approach for estimating rivals’ production cost functions given historical market clearing prices and production levels. We then use these functions to bid strategically and compute Nash equilibrium bids. We present numerical experiments illustrating our methodology, showing good agreement between bids based on the estimated production cost functions with the bids based on the true cost functions. We discuss an extension of our approach that takes into account network congestion resulting in location-dependent prices.

This paper builds an evolutionary model of an industry where firms produce differentiated products. Firms have different average cost functions and faces different demand functions. Firms are assumed to be totally irrational in the sense that firms enter the industry regardless of the existence of profits; firms’ outputs are randomly determined rather than generated from profit maximization problems; and firms exit the industry if their wealth is negative. This paper proves analytically that without purposive profit maximization assumption, monopolistic competition still evolves in the long run. The only long run survivors are those that possess the most efficient technology, face the most favorable market conditions and produce at their profit maximizing outputs. This paper modifies and supports the classic argument for the derivation of monopolistic competition.

Feedback-based reputation systems are widely deployed in E-commerce systems. Evidences showed that earning a reputable label (for sellers of such systems) may take a substantial amount of time and this implies a reduction of profit. We propose to enhance sellers’ reputation via price discounts. However, the challenges are: (1) The demands from buyers depend on both the discount and reputation; (2) The demands are unknown to the seller. To address these challenges, we first formulate a profit maximization problem via a semiMarkov decision process (SMDP) to explore the optimal trade-offs in selecting price discounts. We prove the monotonicity of the optimal profit and optimal discount. Based on the monotonicity, we design a QLFP (Q-learning with forward projection) algorithm, which infers the optimal discount from historical transaction data. We conduct experiments on a dataset from to show that our QLFP algorithm improves the profit by as high as 50% over both the classical Q-learning and speedy Q-learning algorithm. Our QLFP algorithm also improves the profit by as high as four times over the case of not providing any price discount.

The authors develop a two-stage classroom experiment to illustrate convergence to long-run equilibrium in a market where price-taking firms are capacity-constrained. Once equilibrium in the...

Many jobs are connected to a prosocial mission—namely, to a social purpose beyond profit maximization. I use three laboratory experiments to investigate if employers can use the mission to economize on monetary incentives. In my first experiment, I exogenously vary whether the agents’ effort generates a donation to a charity of their choice (matched mission), generates a donation to a charity chosen by another subject (random mission), or generates no donation (no mission). I find that the mission, whether matched or random, increases effort compared to the no-mission condition. Consistent with the theory, nonmotivated principals exploit the agents’ motivation by offering lower piece rates, whereas very motivated principals pay higher piece rates to boost the donation. I find no difference in the effort and piece rate between the matched- and random-mission conditions. In my second experiment, I use a selected pool of motivated subjects but still observe no difference between these two treatments. In my third experiment, I explore whether the effect of mission-matching may arise through gift exchange: principals decide between choosing the mission or delegating the choice to the agent. I do not find evidence that agents who are delegated the mission choice reciprocate with higher effort. These findings suggest that while a prosocial mission allows for economizing on monetary incentives, there are no further gains from increasing the quality of the mission-matching. Data and the supplemental material are available at https://doi.org/10.1287/mnsc.2017.2903 . This paper was accepted by Uri Gneezy, behavioral economics.

Nowadays, consumers play a central role in shaping the right retailing strategy. Motivated by the popularity of trade-in-for-upgrade (TIFU) programs in consumer electronics industries, this study adopts a multi-methodological approach to comprehensively explore TIFU-related behavioral pricing and market competition challenges. Grounded upon consumer psychology and behavior theories, this study develops a generalized consumer choice behavior model which takes into account the potential effect of reference dependence choice behavior. A behavior-grounded analytical model is established. Both analytical and quantitative empirical analyses using multiple empirical data sources are conducted. One distinctive feature of the proposed model is the conceptualization of vendor-buyer collaborative value orientation (termed as syncretic value orientation in this paper) in business objective functions, where we advocate that the extended consumer responsibility (ECR) should be incorporated into the modeling and analysis. In particular, this study derives a generalized form of the analytical model to determine the syncretic value-oriented prices and trade-in rebates under TIFU market competition. The results further reveal that involving the syncretic value in business objectives favors not only a price-leading firm’s expansion of market share but also gaining additional profits with a low-price-low-rebate strategy. Utilizing a low-price-high-rebate strategy, a price follower can seize the opportunity to lead in market share when the price leader solely sets profit maximization as its goal in a competitive market.