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Competition Under Generalized Attraction Models: Applications to Quality Competition Under Yield Uncertainty

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  • Awi Federgruen

    () (Graduate School of Business, Columbia University, New York, New York 10027)

  • Nan Yang

    () (Johnson School of Management, Cornell University, Ithaca, New York 14853)

Abstract

We characterize the equilibrium behavior in a broad class of competition models in which the competing firms' market shares are given by an attraction model, and the aggregate sales in the industry depend on the aggregate attraction value according to a general function. Each firm's revenues and costs are proportional with its expected sales volume, with a cost rate that depends on the firm's chosen attraction value according to an arbitrary increasing function. Whereas most existing competition papers with attraction models can be viewed as special cases of this general model, we apply our general results to a new set of quality competition models. Here an industry has N suppliers of a given product, who compete for the business of one or more buyers. Each of the suppliers encounters an uncertain yield factor, with a given general yield distribution. The buyers face uncertain demands over the course of a given sales season. The suppliers compete by selecting key characteristics of their yield distributions, either their means, their standard deviations, or both. These choices have implications for their per-unit cost rates.

Suggested Citation

  • Awi Federgruen & Nan Yang, 2009. "Competition Under Generalized Attraction Models: Applications to Quality Competition Under Yield Uncertainty," Management Science, INFORMS, vol. 55(12), pages 2028-2043, December.
  • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:12:p:2028-2043
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    File URL: http://dx.doi.org/10.1287/mnsc.1090.1073
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    References listed on IDEAS

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    1. Philip Kotler, 1965. "Competitive Strategies for New Product Marketing Over the Life Cycle," Management Science, INFORMS, vol. 12(4), pages 104-119, December.
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    8. Guillermo Gallego & Woonghee Tim Huh & Wanmo Kang & Robert Phillips, 2006. "Price Competition with the Attraction Demand Model: Existence of Unique Equilibrium and Its Stability," Manufacturing & Service Operations Management, INFORMS, vol. 8(4), pages 359-375, June.
    9. Maqbool Dada & Nicholas C. Petruzzi & Leroy B. Schwarz, 2007. "A Newsvendor's Procurement Problem when Suppliers Are Unreliable," Manufacturing & Service Operations Management, INFORMS, vol. 9(1), pages 9-32, August.
    10. Kaijie Zhu & Rachel Q. Zhang & Fugee Tsung, 2007. "Pushing Quality Improvement Along Supply Chains," Management Science, INFORMS, vol. 53(3), pages 421-436, March.
    11. Sarang Deo & Charles J. Corbett, 2009. "Cournot Competition Under Yield Uncertainty: The Case of the U.S. Influenza Vaccine Market," Manufacturing & Service Operations Management, INFORMS, vol. 11(4), pages 563-576, July.
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    Cited by:

    1. Duijzer, L.E. & van Jaarsveld, W.L. & Dekker, R., 2017. "Literature Review - the vaccine supply chain," Econometric Institute Research Papers EI2017-01, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    2. Felipe Caro & Victor Martínez-de-Albéniz, 2012. "Product and Price Competition with Satiation Effects," Management Science, INFORMS, vol. 58(7), pages 1357-1373, July.
    3. repec:eee:ejores:v:268:y:2018:i:1:p:174-192 is not listed on IDEAS
    4. Karaer, Özgen & Erhun, Feryal, 2015. "Quality and entry deterrence," European Journal of Operational Research, Elsevier, vol. 240(1), pages 292-303.
    5. Jain, Tarun & Hazra, Jishnu, 2017. "Dual sourcing under suppliers' capacity investments," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 103-115.

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