Who benefits from air service agreements? The case of international air cargo operations

in Transportation Research Part B: Methodological (2022), 163

Air service agreements between countries spell out diverse provisions, such as reciprocal capacity allocations. We analyze how such agreements, which regulate total capacity in markets, affect total ... [more ▼]

Air service agreements between countries spell out diverse provisions, such as reciprocal capacity allocations. We analyze how such agreements, which regulate total capacity in markets, affect total welfare and its distribution. We consider the interactions between two competing cargo airlines, their end customers, logistics service providers—who serve as intermediaries between the former two agent types—as well as the policy makers. Accounting for demand uncertainty, we model this interaction as a two-stage game. In the first stage, the policy makers coordinate equal capacity allocations to the two asset providers, whereas in the second stage, the asset providers compete over prices in the spot market. Solving the model, we characterize the pricing strategies employed by the two competing capacity-constrained asset providers in the spot market when facing price sensitive demand from end customers. We further analyze the corresponding capacity decisions. We then compare this coordinated competitive setting with a collaborative setting where the two asset providers can (virtually) merge and act as a monopoly. We find that, compared with the monopoly setting, the coordinated duopoly results in lower capacity, lower profits to the asset providers, larger benefits to both end customers and logistics service providers, and overall lower total welfare. These results suggest that policy makers shall hold an open attitude towards a higher level of cooperation among the asset providers. We carry out robustness checks to verify our insights hold with three, rather than two, asset providers, with different demand distributions, when capacity is costly and when asymmetric capacities are allowed in the spot market. [less ▲]

When the Going Gets Tough, Do the Tough Go Shopping?

in Journal of Business Logistics (2022), 44(1), 61-79

This study examines the impacts of consumer confidence on stockpiling behavior and, subsequently, retail inventory management. We show how stockpiling behavior evolved during the “Great Recession” of 2008 ... [more ▼]

This study examines the impacts of consumer confidence on stockpiling behavior and, subsequently, retail inventory management. We show how stockpiling behavior evolved during the “Great Recession” of 2008-2009 as consumer confidence waned and demonstrate the impact of this development on inventory management. Drawing on the two-segment household inventory theory consisting of non-stockpiling and stockpiling segments, we use a panel dataset (2005-2015) to calibrate household inventory holdings. This dataset then serves as input for a retailer-level case study. Our empirical analysis reveals significant impacts from changing stockpiling behavior. When consumer confidence is low, both stockpiling and non-stockpiling segments respond by reducing weekly consumption rates; however, the stockpiling segment also significantly lengthens the time between shopping trips, and ultimately increases the duration of inventory holdings. These changes to consumption and stockpiling add complexity to inventory planning, requiring retailers to carefully adjust inventory levels to maintain service levels. [less ▲]

Redefining resilience: Integrative review and development of an assessment tool

E-print/Working paper (2021)

Pre-Hurricane Consumer Stockpiling and Post- Hurricane Product Availability: Empirical Evidence from Natural Experiments

in Production and Operations Management (2020), 29(10), 2350-2380

The provision of essential supplies is a key service provided by retailers when demand spikes due to consumer stockpiling during environmental emergencies. Moreover, it is important for retailers to ... [more ▼]

The provision of essential supplies is a key service provided by retailers when demand spikes due to consumer stockpiling during environmental emergencies. Moreover, it is important for retailers to quickly recover from these events by replenishing the stock of essential supplies to meet the continuing needs of local residents. The main purpose of this research is to study consumer precautionary stockpiling behavior prior to the onset of hurricane landfalls and determine the impact of this behavior on in-store product availability for various formats of retail store outlets. Specifically, we focus on the bottled water product category, an essential emergency category in hurricane preparedness. This study combines an event analysis methodology with econometric models using archival retail scanner data from 60 U.S. retail chains located in 963 counties and real-time data from four recent U.S. continental hurricanes. We find that supply-side characteristics (retail network and product variety), demand-side characteristics (hurricane experience and household income), and disaster characteristics (hazard proximity and hazard intensity) significantly affect consumer stockpiling propensity as the hurricanes approach. The increased consumer stockpiling has immediate and longer-term impacts on retail operations, namely, in-store product availability. Among various retail formats, drug stores are associated with the highest consumer stockpiling propensity before hurricanes, while dollar stores and discount stores are associated with the lowest in-store product availability following hurricanes. Our study points to the need for retailers and policymakers to carefully monitor factors affecting consumer stockpiling behavior that will allow for better allocation of critical supplies during the hurricane season. [less ▲]

Managing Strategic Inventories under Investment in Process Improvement

in European Journal of Operational Research (2019), 279(3), 782-794

In supplier-retailer interactions, the retailer may carry inventories strategically as a bargaining mechanism to induce the supplier to drop the future wholesale price. As per Anand, Anupindi, and Bassok ... [more ▼]

In supplier-retailer interactions, the retailer may carry inventories strategically as a bargaining mechanism to induce the supplier to drop the future wholesale price. As per Anand, Anupindi, and Bassok (2008), the introduction of strategic inventories always benefits the supplier and possibly also the retailer if the holding cost is sufficiently low (due to the contract-space-expansion effect). Is such a move beneficial for the supply chain agents in the presence of process improvement efforts? Such efforts—initiated by suppliers—ultimately reduce production cost and may translate into lower wholesale prices as well as lower consumer prices. We find that strategic inventories may stimulate investment in process improvement when the holding cost is high (as it encourages the supplier to further reduce future cost to eliminate the need for strategic inventories), but may suppress such investment when the holding cost is low (as strategic inventories are cheap to stock and hence cannot be eliminated). Our key result, contrary to the existing literature, is that strategic inventories may be harmful to both supply chain agents in the presence of process improvement. In that case, the supplier effectively over-invests in process improvement efforts, inducing the retailer to reduce the stock of strategic inventories, while reversing the benefits of the contract-space-expansion effect. We also consider variations to the model, whereby the supplier may delay his investment decision, the holding cost may be a function of the wholesale price set by the supplier, consumers may behave strategically, and the planning horizon may consist of multiple periods. [less ▲]

Chapter 11 and the Level Playing Field: Should Chapter 11 be Considered as a Subsidy?

in Journal of Air Transport Management (2019), 74

This paper assesses whether Chapter 11 is a form of subsidy for US airlines. US airlines have used Chapter 11 to restructure their operations. This has been criticized as a subsidy by major non US ... [more ▼]

This paper assesses whether Chapter 11 is a form of subsidy for US airlines. US airlines have used Chapter 11 to restructure their operations. This has been criticized as a subsidy by major non US airlines and governments for a long time and recently, in the “level playing field” debate. Applying legal and economic perspectives of subsidy, we examine the different opportunities of Chapter 11 to reduce airlines’ costs. It is argued that most of the forms available, such as the modification of collective bargaining, do not constitute a subsidy. Only the termination of pension plans might involve a subsidy, but only using a legal definition of doubtful relevance since there is normally no use of public funds. [less ▲]

Price volatility and market performance measures: The case of revenue managed goods

in Transportation Research. Part E, Logistics and Transportation Review (2018), 120(December), 35-50

The operational outcome of Revenue Management (RM) is manifested in different magnitudes of market level price volatilities. In this paper we take an analytics approach to the possible use of pricing data ... [more ▼]

The operational outcome of Revenue Management (RM) is manifested in different magnitudes of market level price volatilities. In this paper we take an analytics approach to the possible use of pricing data of revenue-managed goods to support market analysis. Quantifying the relationship between market-level price volatility in the airline industry and various market-level performance metrics, we find that higher levels of price volatility are associated with higher levels of transacted fares, lower load factors, higher revenues, and increased transacted fare dispersion. This suggests the potential in utilizing market price volatility as an input for market analytics. [less ▲]

P2P Marketplaces and Retailing in the Presence of Consumers' Valuation Uncertainty

in Production and Operations Management (2017), 26(3), 509--524

Fare Prediction Websites and Transaction Prices: Empirical Evidence from the Airline Industry

in Marketing Science (2016), 35(4), 640--655

Government and company contracts: The effect on service and prices in international airline markets

in Economics of Transportation (2015), 4(3), 166--177