No abstract

In this paper we analyze the joint implications of two effects: (a) inserting independent profit-maximizing retailers into the channel system provides “buffering” to the manufacturers from price competition when their products are highly substitutable and intrachannel contracts are observable (as shown by McGuire and Staelin 1983 under the assumption of constant marginal production costs), and, (b) lack of channel coordination results in a reduction in manufacturer's incentives to invest in efforts to reduce production costs (as shown by Jeuland and Shugan 1983 for the case of bilateral monopoly). We show that both these results are robust in the sense that the first holds even in the presence of the vertical externality of manufacturer's effort reduction in a noncoordinated channel, and the second holds regardless of the degree of substitutability between the competing channel's products. Specifically, we analyze a four-stage game with two manufacturers and two retailers, where the intrachannel contracts are linear and observable and manufacturers make investments in process improvements to reduce their production costs. We find that the optimal channel structure decision depends on interactions between two parameters: the degree of substitutability between products and the level of investments required to achieve production cost reduction. These parameters represent what have been widely interpreted in the management literature as the two primary “generic strategies” that most organizations follow in order to gain competitive advantage: cost leadership and product differentiation (Porter 1980). Thus, our analysis brings out the strategic and interdisciplinary nature of the channel structure decision that can significantly affect firm profitability. Our main results are as follows. First, we find that decentralized, noncoordinated channels appear as more profitable equilibrium than integration (or perfectly coordinated channels) at high product substitutability even when process innovation dimension is accounted for, in agreement with the literature. However, the range of substitutability over which decentralization is an equilibrium strategy is smaller the easier it is to reduce production costs. Intuitively, the easier the cost reduction, the larger the cost penalty that the channel incurs as a result of not coordinating investment and pricing decisions between channel members, and thus smaller the range over which decentralization is an equilibrium. This implies that there is an explicit tradeoff between efficiency and strategic incentives in distribution channel design. Second, we show that decentralized manufacturers invest less in process innovation than integrated manufacturers do, regardless of the structure of the competing channel and the degree of substitutability between products. Consequently, a decentralized channel has higher costs, charges higher prices, and produces lower quantities than an integrated channel does. Moreover, these differences get larger the easier the cost reduction. The effect ...

Anthropogenic emissions likely pose serious threat to the stability of our environment; immediate actions are required to change the way the earth's resources are consumed. Among the many approaches to mitigation of environmental deterioration being considered, the processes for designing, sourcing, producing and distributing products in global markets play a central role. Considerable research effort is being devoted to understanding how organisational initiatives and government policies can be structured to facilitate incorporation of sustainability into design and management of entire supply chain. In this paper, we review the current state of academic research in sustainable supply chain management, and provide a discussion of future direction and research opportunities in this field. We develop an integrative framework summarising the existing literature under four broad categories: (i) strategic considerations; (ii) decisions at functional interfaces; (iii) regulation and government policies; and (iv) integrative models and decision support tools. We aim to provide managers and industry practitioners with a nuanced understanding of issues and trade-offs involved in making decisions related to sustainable supply chain management. We conclude the paper by discussing environmental initiatives in India and the relevance of sustainability discussions in the context of the Indian economy.

Extended Producer Responsibility (EPR) legislation focuses on the life‐cycle environmental performance of products and has significant implications for management theory and practice. In this paper, we examine the influence of EPR policy parameters on product design and coordination incentives in a durable product supply chain. We model a manufacturer supplying a remanufacturable product to a customer over multiple periods. The manufacturer invests in two design attributes of the product that impact costs incurred by the supply chain—performance, which affects the environmental impact of the product during use, and remanufacturability, which affects the environmental impact post‐use. Consistent with the goals of EPR policies, the manufacturer and the customer are required to share the environmental costs incurred over the product's life cycle. The customer has a continuing need for the services of the product and optimizes between the costs of product replacement and the costs incurred during use. We demonstrate how charges during use and post‐use can be used as levers to encourage environmentally favorable product design. We analyze the impact of supply chain coordination on design choices and profit and discuss contracts that can be used to achieve coordination, both under symmetric and asymmetric information about customer attributes.

We characterize the trade‐offs among firms' compliance strategies in a market‐based program where a regulator interested in controlling emissions from a given set of sources auctions off a fixed number of emissions permits. We model a three‐stage game in which firms invest in emissions abatement, participate in a share auction for permits, and produce output. We develop a methodology for a profit‐maximizing firm to derive its marginal value function for permits and translate this value function into an optimal bidding strategy in the auction. We analyze two end‐product market scenarios independent demands and Cournot competition. In both scenarios we find that changing the number of available permits influences abatement to a lesser extent in a dirty industry than in a cleaner one. In addition, abatement levels taper off with increasing industry dirtiness levels. In the presence of competition, firms in a relatively clean industry can, in fact, benefit from a reduction in the number of available permits. Our findings are robust to changes in certain modeling assumptions.