Problem definition : A critical decision made by firms is whether to adopt a responsive supply chain (prioritizing speed) or an efficient supply chain (prioritizing cost). We consider the environmental implications of this choice, distinguishing between responsiveness achieved via three pathways: responsive offshore supply chains increase speed by using expedited production and distribution methods; responsive nearshore supply chains increase speed by reducing the physical distance between source and destination for all production; and hybrid nearshore supply chains produce in multiple locations simultaneously, increasing speed by reducing distance on some portion of production. Methodology/results : Using a model wherein responsiveness increases fixed and marginal costs, decreases leadtimes, and changes the per-unit environmental impact of production and distribution, we identify several results. First, all types of responsiveness can decrease environmental impact relative to an efficient supply chain, showing any form of responsiveness has potential to improve sustainability. Second, despite this, all types of responsiveness can also increase environmental impact relative to an efficient supply chain, particularly if demand variability is high. This is precisely when responsiveness is most profitable to the firm, indicating a tension between firm and environmental preferences. Third, a win-win outcome in which responsiveness both maximizes firm profit and minimizes environmental impact is most likely to occur when demand variability is high and unsatisfied customers substitute with a product that generates high environmental impact. Fourth, the firm may have incentive to choose a supply chain that does not minimize (and may maximize) environmental impact, especially at low-to-moderate demand variability. Managerial implications : While responsive supply chains can improve sustainability, they also generate the potential for misalignment of profit and environmental performance. We discuss the implications of this for firms and for policymakers seeking to encourage firms to use supply chains that generate the least environmental impact. Supplemental Material: The e-companion is available at https://doi.org/10.1287/msom.2022.0152 .

We study the value of two types of vertical control—vertical integration and direct sourcing—for firms seeking to increase resilience towards random raw materials shortages. We use a model of sourcing in a three-tier supply chain in which a Tier 0 buyer sources a critical component from Tier 1 suppliers, who in turn source raw materials from disruption-prone Tier 2 suppliers. With vertical integration, the buyer purchases one or more Tier 1 suppliers, taking control of their inventory and sourcing decisions. With direct sourcing, the buyer purchases raw material directly from Tier 2 and sells to Tier 1. We first study each type of vertical control in isolation, and show that, in general, both types are most valuable to the buyer when Tier 2 disruptions are highly correlated, and the likelihood and severity of disruptions are both moderate (neither too high nor too low); otherwise, the buyer may be better off employing traditional disruption mitigation strategies such as holding excess inventory and multisourcing. We also consider the buyer's choice between vertical integration and direct sourcing, and show that the buyer's preference between the two depends critically on the severity of disruptions, rather than their likelihood or correlation, with vertical integration preferred for more severe disruptions. Together, our results show that both types of vertical control—vertical integration and direct sourcing—can be valuable additions to the portfolio of strategies firms use to mitigate disruption risk, although they are not a panacea and are most effective under specific circumstances.

Restaurant delivery platforms collect customer orders via the Internet, transmit them to restaurants, and deliver the orders to customers. They provide value to restaurants by expanding their markets, but critics claim they destroy restaurant profits by taking a percentage of revenues and generating congestion that negatively impacts dine-in customers. We consider these tensions using a model of a restaurant as a congested service system. We find that the predominant industry contract, in which the platform takes a percentage cut of each delivery order (a “commission”), fails to coordinate the system because the platform does not internalize its effect on dine-in revenues; this leads to prices that are too low, reducing the restaurant’s margins and leaving money on the table for both firms. Two commonly proposed remedies to this problem (commission caps and allowing the restaurant to set a price floor on the platform) can increase restaurant revenue but do not solve the coordination issue. We thus propose an alternative, practical coordinating contract that is a variation of the current industry standard: for each delivery order, the platform pays the restaurant a percentage revenue share and a fixed fee. We show that this contract, appropriately designed, coordinates the system, protects restaurant margins by ensuring a lower bound on its revenue per delivery order, and allocates revenue between the restaurant and the platform with a high degree of flexibility. This paper was accepted by Victor Martinez-de-Albeniz, operations management. Supplemental Material: The e-companion is available at https://doi.org/10.1287/mnsc.2022.4390 .

In rewards-based crowdfunding, entrepreneurs solicit donations from a large number of individual contributors. If total donations exceed a prespecified funding target, the entrepreneur distributes nonmonetary rewards to contributors; otherwise, their donations are refunded. We study how to design such campaigns when contributors choose not just whether to contribute, but also when to contribute. We show that strategic contribution behavior-when contributors intentionally delay until campaign success is likely-can arise from the combination of nonrefundable (potentially very small) hassle costs and the risk of campaign failure, and can explain pledging patterns commonly observed in crowdfunding. Furthermore, such delays do not hurt the entrepreneur if contributors are perfectly rational, but they do if contributors are distracted, that is, if they might fail to return to the campaign after an intentional delay. To mitigate this, we find that an entrepreneur can use a simple menu of rewards with a fixed number of units sold at a low price, and an unlimited number sold at a higher price; this segments contributors over time based on the information they observe upon arrival. We show that, despite its simplicity, such a menu performs well compared to a theoretically optimal menu consisting of an infinite number of different rewards and price levels under many conditions.

Problem definition: We analyze a firm that sells repeatedly to a customer population over multiple periods. Although this setting has been studied extensively in the context of dynamic pricing—selling the same product in each period at a varying price—we consider intertemporal content variation, wherein the price is the same in every period, but the firm varies the content available over time. Customers learn their utility on purchasing and decide whether to purchase again in subsequent periods. The firm faces a budget for the total amount of content available during a finite planning horizon, and allocates content to maximize revenue. Academic/practical relevance: A number of new business models, including video streaming services and curated subscription boxes, face the situation we model. Our results show how such firms can use content variation to increase their revenues. Methodology: We employ an analytical model in which customers decide to purchase in multiple successive periods and a firm determines a content allocation policy to maximize revenue. Results: Using a lower bound approximation to the problem for a horizon of general length T, we show that, although the optimal allocation policy is not, in general, constant over time, it is monotone: content value increases over time if customer heterogeneity is low and decreases otherwise. We demonstrate that the optimal policy for this lower bound problem is either optimal or very close to optimal for the general T period problem. Furthermore, for the case of T = 2 periods, we show how two critical factors—the fraction of “new” versus “repeat” customers in the population and the size of the content budget—affect the optimal allocation policy and the importance of varying content value over time. Managerial implications: We show how firms that sell at a fixed price over multiple periods can vary content value over time to increase revenues.

A critical decision made by many firms is whether to adopt a responsive supply chain (prioritizing speed) or an efficient supply chain (prioritizing cost). We consider the environmental implications of this choice. We analyze a model wherein responsiveness increases marginal costs, decreases leadtimes, and changes the per-unit environmental impact of production. We distinguish between responsive nearshore and offshore supply chains: in the former, responsiveness is achieved by reducing the physical distance between source and destination, while in the latter, it is achieved by using expedited production and transportation methods. Compared to an efficient supply chain, we find a responsive offshore supply chain always increases firm profit and environmental impact. A responsive nearshore supply chain yields greater profit than an efficient supply chain if demand variability is high; however, it generates smaller environmental impact if demand variability is low. These are opposite conditions, and hence even with a responsive nearshore supply chain, firms will have the greatest incentive to invest in a responsiveness when it is most detrimental to the environment. Nevertheless, it is possible for a responsive nearshore supply chain to both increase profit and decrease environmental impact, provided demand variability is moderate. We conclude that while fast supply chains are not inherently unsustainable, they generate the potential for misalignment of profit and environmental performance, and the problem is more severe with responsive offshore supply chains. We discuss the implications of this for policymakers seeking to encourage firms to use supply chains that generate the least environmental impact.

Retailers have increasingly pursued initiatives to combine inventory located throughout their enterprise into a single stock from which customers anywhere in their distribution network may purchase. Also known as inventory pooling, this practice is well known to generate operational value by reducing inventory requirements and stock-outs. In “Inventory Integration with Rational Consumers,” Aflaki and Swinney examine a different consequence of pooling: how it influences customer purchasing behavior. They show that integration can lead to behavioral consequences resulting from changing customer purchasing incentives, especially for seasonal goods that are sold in end-of-season clearance sales. These behavioral effects can be negative, and can even outweigh the operational benefits of pooling, if pooling leads to an increase in clearance sale inventory availability that encourages more customers to wait for discounts before buying. Specific conditions that lead to negative (or positive) behavioral value of integration are discussed. Overall, the results illustrate that the ways customers react to inventory pooling can be just as important as its operational consequences.

Pricing over multiple periods under forward-looking, strategic consumer purchasing behavior has received significant recent research attention; however, whether consumers actually benefit from this behavior and would voluntarily choose to be strategic has not been previously considered. We explore this question by developing a model of endogenous time preferences, consistent with microeconomic theories of boundedly rational intertemporal decision making, in which consumers choose to become strategic by exerting costly effort. We show three key implications of this choice. First, considering the consumer choice to be strategic can have a significant impact on firm and consumer decisions-in particular, qualitatively impacting the firm's optimal pricing policy. Second, it is possible to increase firm profit, consumer surplus, and social welfare simultaneously by increasing the cost of strategic behavior, suggesting that firms can, essentially, force consumers to be myopic and make all parties better off; this helps explain how firms that do the most to make strategic behavior difficult are able to attract more demand and be successful in the marketplace. And third, efforts to mitigate strategic consumerwaiting by committing to future prices instead of pricing dynamically may decrease the cost of strategic behavior and backfire, encouraging more consumers to be strategic; hence, in contrast to most previous research, price commitment may yield lower profit than dynamic pricing if consumers can choose to be strategic.

Restaurant delivery platforms collect customer orders via the internet, transmit them to restaurants, and deliver the orders to customers. They provide value to restaurants by expanding their markets, but critics claim they destroy restaurant profits by taking a percentage of revenues and generating congestion that negatively impacts dine-in customers. We consider these tensions using a model of a restaurant as a congested service system. We find that the predominant industry contract, in which the platform takes a percentage cut of each delivery order (a “commission”), fails to coordinate the system because the platform does not internalize its effect on dine-in revenues; this leads to prices that are too low, reducing the restaurant’s margins and leaving money on the table for both firms. Two commonly proposed remedies to this problem (commission caps and allowing the restaurant to set a price floor on the platform) can increase restaurant revenue but do not solve the coordination issue. We thus propose an alternative, practical coordinating contract that is a variation of the current industry standard: for each delivery order, the platform pays the restaurant a percentage revenue share and a fixed fee. We show that this contract, appropriately designed, coordinates the system, protects restaurant margins by ensuring a lower bound on its revenue per delivery order, and allocates revenue between the restaurant and the platform with a high degree of flexibility.

We analyze distribution decisions by content creators for digital information goods like books and music. There are two creators (low and high quality) that sell content through the same platform, and may choose whether to distribute their content a la carte, via a subscription service, or both. Each creator may set the price of her a la carte offerings, while the platform keeps a percentage of revenue from each sale. The platform determines the subscription service fee and what fraction of revenue to distribute to content creators, who are paid proportional to the revenue share chosen by the platform and the percentage of total “use” that they generate on the subscription service (e.g., their fraction of total pages read in a month). We show the platform cannot induce only the high quality creator to list on the subscription service; thus, subscription offerings are always weakly lower in quality than a la carte offerings. Moreover, we find that in many cases, to maximize profit, the platform should either induce only the low quality creator to sell via subscription, or it should shut down a la carte sales altogether; inducing high quality on the subscription service is excessively costly, a result which may help to explain the relative low quality of product offerings on these services in practice. We also show that this effect can be mitigated — and inducing high quality on the subscription service can be optimal for the platform — in the presence of a large “subscription only” consumer segment.

In many industries, product design and manufacturing lead times are sufficiently long that both the quality level of a product and the amount of inventory produced must be determined before a firm knows what the actual demand will be. In this paper, we conduct a theoretical analysis of such a setting. We first consider a centralized channel and characterize the optimal decisions by establishing relationships that must hold between the elasticity of cost of quality and the elasticity of revenue and show that quality and inventory are strategic substitutes. Next, we consider a decentralized channel with a wholesale price contract, in which a manufacturer determines quality and wholesale price, while a retailer determines inventory and retail price. We find that, different from the case without endogenous inventory, product quality can be higher in a decentralized channel compared to a centralized channel, and this is because a wholesale price contract shields the manufacturer from inventory risk. For both centralized and decentralized channels, we find that as demand uncertainty increases, quality decreases, while, different from the case without endogenous quality, inventory can be U-shaped. Interestingly, to mitigate the impact of demand uncertainty on profit, quality can be a more effective lever than inventory in a centralized channel; however, in a decentralized channel, quality is less responsive and inventory is more responsive to demand uncertainty than in a centralized channel.The online appendix is available at https://doi.org/10.1287/mksc.2017.1041.

We study sourcing in a supply chain with three levels: a manufacturer, tier 1 suppliers, and tier 2 suppliers prone to disruption from, e.g., natural disasters such as earthquakes or floods. The manufacturer may not directly dictate which tier 2 suppliers are used but may influence the sourcing decisions of tier 1 suppliers via contract parameters. The manufacturer’s optimal strategy depends critically on the degree of overlap in the supply chain: if tier 1 suppliers share tier 2 suppliers, resulting in a “diamond-shaped” supply chain, the manufacturer relies less on direct mitigation (procuring excess inventory and multisourcing in tier 1) and more on indirect mitigation (inducing tier 1 suppliers to mitigate disruption risk). We also show that while the manufacturer always prefers less overlap, tier 1 suppliers may prefer a more overlapped supply chain and hence may strategically choose to form a diamond-shaped supply chain. This preference conflict worsens as the manufacturer’s profit margin increases, as disruptions become more severe, and as unreliable tier 2 suppliers become more heterogeneous in their probability of disruption; however, penalty contracts—in which the manufacturer penalizes tier 1 suppliers for a failure to deliver ordered units—alleviate this coordination problem. This paper was accepted by Yossi Aviv, operations management.

We analyze the sourcing decision of a buyer choosing between two supplier types: responsible suppliers are costly but adhere to strict social and environmental responsibility standards, whereas risky suppliers are less expensive but may experience responsibility violations. A segment of the consumer population, called socially conscious, is willing to pay a higher price for a product sourced from a responsible supplier and may not purchase in the event of a responsibility violation from a risky supplier. We identify four possible sourcing strategies that a buyer might employ: low cost sourcing (sourcing from the risky supplier), dual sourcing, responsible niche sourcing (sourcing from a responsible supplier and selling only to socially conscious consumers), and responsible mass market sourcing (sourcing responsibly and selling to all consumers). We determine when each strategy is optimal and show that efforts to improve supply chain responsibility that focus on consumers (by increasing their willingness to pay for responsibility or increasing the number of consumers that are socially conscious) or increasing supply chain transparency may lead to unintended consequences, such as an increase in risky sourcing. Efforts that focus on enforcement and penalizing the buyer, however, never backfire and always lead to more responsible sourcing and less risky sourcing. This paper was accepted by Yossi Aviv, operations management.

Problem definition: We study the management of social responsibility in a three-tier supply chain with a tier 2 supplier selling to a tier 1 supplier, in turn selling to a tier 0 buyer. The tier 2 supplier may violate social and environmental standards, resulting in harm to all firms in the supply chain; we analyze the equilibrium allocation of costly effort by each firm to improve responsibility in tier 2. We also examine how pressure from external stakeholders (consumers, nongovernmental organizations, and governments) influences the optimal level of responsibility. Academic/practical relevance: Recently, there have been numerous serious responsibility violations in tiers 2+ of multinational supply chains, leading to significant negative consequences for firms and society; understanding how best to manage such violations is of practical importance to multiple stakeholders. Methodology: We employ a game theoretic model wherein each firm in the supply chain optimizes its responsibility efforts to maximize its own profit and study the implications of this decentralized optimization for the overall supply chain. Results: Under the conditions of ourmodel, the buyer's optimal strategy is one of extremes, consisting of direct control (only tier 0 works with tier 2), delegation (only tier 1 works with tier 2), or no effort (neither firmworkswith tier 2); we determinewhen each is optimal and discuss key drivers of the optimality of these extreme strategies. We further find that increasing some types of external pressure can backfire, leading to a lower level of responsibility. Managerial implications: For firms using multitier supply chains, we show how to manage risk by choosing between different responsibility management strategies. For external stakeholders seeking to encourage responsibility, we provide insights on how to achieve this while avoiding "backfiring." For researchers, we provide a modeling framework to study responsibility and riskmanagement problems inmultitier supply chains.

In this section we numerically extend the analytical insights regarding heterogeneous unreliable Tier 2 suppliers derived in the main text to a more general case in which Tier 2 suppliers may di↵er in both procurement cost and disruption risk, which we denote cj and j , j = 1, 2. As in the main text, we assume that 1  2, but the cost parameters may be ordered in any way. Our chief goal is to confirm the following four key results. (1) Holding all else equal, a diamond shaped supply chain results in less reliance on manufacturer mitigation and more reliance on supplier mitigation than a V shaped supply chain. (2) Tier 1 suppliers are less likely to select a V shaped supply chain as the manufacturer’s unit revenues increase, while the manufacturer always prefers a V shaped supply chain. (3) A preference conflict between the manufacturer and Tier 1 suppliers over the supply chain configuration is more likely for more severe disruptions and more heterogeneous Tier 2 suppliers. (4) Penalty contracts can eliminate the perverse incentives for Tier 1 suppliers to select a diamond shaped supply chain. It is clearly the case that (1) and (4) hold even under cost heterogeneity. To show (1), we must consider the limit as cost and risk become equal between the Tier 2 suppliers, as in the main text, so that comparisons between the supply chain configurations are truly made “all else being equal.” Because we have already made this comparison in the paper for the case of c1 = c2 and 1 = 2, there is no additional analysis necessary. In addition, (4) is also clearly true even with heterogeneous costs, as the manufacturer can still extract all surplus from Tier 1 suppliers using appropriate penalties, thereby making Tier 1 suppliers indi↵erent between the supply chain configurations. Thus, in our numerical analysis we must only show that (2) and (3) continue to qualitatively hold under cost and risk heterogeneity. To accomplish this, we numerically calculate the manufacturer’s optimal strategy in the diamond and V shaped supply chains, as well as the equilibrium to the supply chain configuration game, for

Problem definition: We consider an entrepreneur designing a fixed funding rewards-based crowdfunding campaign for an innovative product. Product quality is known to the entrepreneur but unknown to some backers. We study how the entrepreneur can signal quality to backers via the design of the crowdfunding campaign, including the price of the reward and the funding target. Academic/practical relevance: Crowdfunding is a new and popular way of funding innovative products. Despite numerous advantages, there are challenges to this model, one of the most significant being credibly signaling information about product quality to a pool of small, uninformed investors. We explore how an entrepreneur might accomplish this and overcome a key obstacle to crowdfunding. Methodology: We employ a game theoretic model of signaling between an entrepreneur and campaign backers. Results: We find that the entrepreneur should signal high quality by setting a high target that is distorted above the full information optimal level. While a separating equilibrium always exists, a pooling equilibrium can only occur under very specific circumstances. We show that the high target affects the quality choice of entrepreneurs and may deter unique, high-quality projects. In addition, we discuss how the entrepreneur should modify the signaling strategy when a high target potentially deters backers from pledging because of the cost of participating in a failed campaign. Managerial implications: We show how entrepreneurs can effectively design their crowdfunding campaign to signal high quality, thus providing guidance to creators listing products on crowdfunding websites. We also show information asymmetry and signaling affect product quality decisions by creators, which in turn is of interest to platform designers seeking to solicit high-quality products for their platforms.

We refer to these as results 1 and 2 throughout this document. We first derive the firm’s optimal profit under each of the four sourcing strategies discussed in the main text of the paper, and then we confirm the two key results listed above. In what follows, we focus on interior solutions (i.e., points at which the optimal price lies in the interior of the consumer valuation distribution’s support); boundary solutions are similar to the case of homogenous consumer valuations (i.e., if the optimal price is the lower bound of the consumer valuation distribution, vl, the results are similar to the results in the main text of the paper with the homogenous valuation

We analyze the sourcing decisions of firms that may choose between two types of suppliers: responsible suppliers that are costly but adhere to the strictest social and environmental responsibility standards, and normal suppliers that are less expensive but may randomly experience responsibility violations. There are two potential consequences of any such violation to the buying firm: costs may increase (e.g., due to increased monitoring of the supplier, wage increases, or product recall expenses) and some segment of the consumer population, which we refer to as socially conscious, will choose not to buy from the firm, leading to a reduction in demand. We consider how three structural elements of the supply chain influence the firm's optimal sourcing decision: downstream competition, the concentration of the supplier base, and supply chain flexibility. We find that greater downstream competition, a more concentrated supplier base, a less flexible supply chain all make a firm more likely to source responsibly. We conclude that supply chain characteristics play a key role in determining the optimality of responsible sourcing.

We analyze a firm designing and selling a seasonal product with demand uncertainty and a single ordering opportunity. Prior to the start of the selling season, product quality and inventory must be jointly determined; a higher quality product results in a greater selling price but also greater marginal production cost. We consider both a centralized supply chain, in which a single firm determines quality and inventory, and a decentralized supply chain, in which a manufacturer determines product quality and a retailer determines inventory. In a centralized supply chain, we provide a simple characterization of the optimal inventory and quality, and demonstrate that at the optimal inventory-quality pair the sales function elasticity is equal to the reciprocal of the cost function elasticity. In a decentralized supply chain, we demonstrate that standard wholesale price contracts cannot coordinate the supply chain in inventory or quality, and discuss the impact of these contracts on quality and inventory levels; interestingly, we show that quality is often higher under wholesale price contracts than in a centralized system due to substitutability with inventory, despite the fact that double marginalization reduces manufacturer incentives to invest in quality, all else being equal. We also show that, surprisingly, standard revenue sharing contracts can coordinate the supply chain in quality choice in some cases; however, this requires truthful sharing of the manufacturer’s cost structure, which we demonstrate is not in the manufacturer’s interests to reveal. We conclude that simultaneously coordinating product design and inventory in decentralized supply chains, while feasible, is likely to be challenging in practice, perhaps helping to explain the value of the recent surge of “direct-to-consumer” distribution that avoids coordination problems by having the same firm design and sell seasonal goods.