No abstract

No abstract

Outsourcing the production of selected components to competitors is becoming more common among original brand manufacturers (OBMs); however, OBMs’ increased attention to outsourcing and the growing demand in many markets can result in capacity allocation conflicts for the contract manufacturers. In this study, we consider a scenario in which the OBM decides whether to outsource to a third‐party supplier or to a competitive contract manufacturer (CCM) who has the option of producing a competing product and also has limited capacity. This setting consists of two levels of competition: competition in the component market between the CCM and the spot market, and competition in the final‐product market between the OBM and the CCM. The CCM first chooses the wholesale price and decides whether or not to sell a competing product to the customers. Next, the OBM decides the proportion of its component demand to outsource to the CCM, and then firms set the retail prices. We are interested in investigating the impacts of the CCM's capacity and the impacts of these two levels of competition. We show that the OBM might multisource its component demand only when competition in the final‐product market is intense. We also find that when the CCM's capacity increases, demand may decrease, while the retail price may increase. Moreover, the CCM can be worse off from having more capacity, even when the CCM's capacity is available for free. Our results also show that demand may increase when competition in the final‐product market becomes more intense. Finally, we find that the value of having a third‐party supplier to produce the component decreases amid the intensity of competition in the final‐product market.

We study gain‐sharing agreements in a target price‐minimum quality payment system. Our work is inspired by the Centers for Medicare and Medicaid Services’ (CMS) Comprehensive Care for Joint Replacement (CJR) bundled payment model. In our model, patients receive care from a hospital and a post‐acute care provider. A third‐party payer establishes target levels for total billing by the hospital and provider, and a target on the overall quality of care. The hospital and provider receive fee‐for‐service (FFS) billings during an episode of care, defined as the period that starts with an admission of a patient to the hospital and ends 90 days post‐discharge. The hospital may also receive an incentive payment if total FFS billing by both parties is below the target price and total quality by both parties is above the minimum quality. The goal of the incentive payment is to encourage hospitals to enter into “gain‐sharing” agreements with providers. We model the interactions between the three parties. We show that while using a gain‐sharing agreement might be a “win‐win‐win” scenario for the three parties, good design of the payment scheme by the payer is essential to incentivize a hospital to participate in the bundled payment model (e.g., CJR) and sign a gain‐sharing agreement with the provider. Furthermore, we illustrate that a target price‐minimum quality bundled payment model would be more effective, in care‐coordination, in healthcare settings where the provider is much more effective than the hospital in reducing its billing.

No abstract