2016 INFORMS Annual Meeting Program

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INFORMS Nashville – 2016
441
2 - Optimal Timing Of Technology Adoption By Incumbents:
War Of Attrition Versus Preemption
Nick Huberts, Tilburg University,
I consider two incumbent firms with an option to adopt a differentiated
technology. The firms decide upon both the investment moment and the
investment size. I find that adoption kills the old technology only when
innovation is radical. When the degree of innovation is small and when the
products are not close substitutes a war of attrition arises. Otherwise the firms end
up in a preemption equilibrium. When a second-mover advantage is present,
firms either want to stay alone on the old market or want to set a larger capacity
as Stackelberg follower. Market uncertainty increases the first-mover advantage
and at the same time makes it more attractive for the endogenous follower to
forego adoption.
3 - Disruptive Innovation In A Declining Market
Kuno Huisman, Tilburg University,
The paper considers the problem of a firm operating in a declining market. The
firm has an option to innovate and has to derive the right time to do so, if at all.
We find that it can be optimal for the firm to innovate because of two reasons.
The first reason is that a new technology is available with which the firm can
achieve high profits. The second reason is that, due to demand saturation, profits
of the established product have become so low that the firm will adopt a new
technology even if the newest available innovation has not improved for some
time.
WC42
207D-MCC
Behavioral Considerations in Pricing and Revenue
Management
Sponsored: Revenue Management & Pricing
Sponsored Session
Chair: Monire Jalili, The University of Oregon, 488 Lillis,
Lundquist College of Business, Eugene, OR, 97403, United States,
1 - Dynamic Pricing And Learning In Prediction Markets
Adam Schultz, University of Chicago-Booth School of Business,
Chicago, IL, United States, ,
John Birge, N. Bora Keskin, Yifan Feng
We consider a market maker who operates a prediction market for an event with
an uncertain outcome (e.g., government election, sporting event, etc.) and must
dynamically select a control (i.e., price) over time. We characterize the market
maker’s optimal policy when the market includes only myopic agents and show
how a myopic policy exhibits near-optimal performance. We also consider a
market including a strategic agent who knows the event outcome (e.g., an insider
trader) and demonstrate that the market maker’s policies are robust to the
presence of a strategic agent in the market.
2 - Try Before You Buy Pricing. Should Rental Fees Apply To
Purchases?
Monire Jalili, The University of Oregon, ,
Michael Pangburn
When a product has uncertain value or is used repeatedly over time, customers
may opt to rent the product before purchasing. In some instances, sellers entice
purchase conversions by offering part of the already-paid rental fee as a discount
towards purchase. But, another common pricing tactic is for the seller to apply no
such credit towards conversion to purchase. In this paper, we analyze the optimal
pricing and discounting policy for a monopolist selling to a market of consumers
facing uncertain product valuation, and derive the conditions under which a firm
should optimally apply some of the rental price towards the product purchase.
3 - Analysts Decisions In Airline Revenue Management –
An Experimental Study
Claudia Schuetze, , RWTH Aachen University, Aachen,
Germany, Catherine Cleophas
Revenue management could, in theory, fully rely on automated systems to
predict demand and optimize revenue. In practice, analysts play a crucial role for
revenue management. They influence the system given additional information
about market changes and the firm’s strategic objectives. We present a range of
behavioural experiments to test how analyst decisions are affected by factors such
as demand complexity and decision variables. Our analysis considers achieved
revenue, learning effects, and decision biases. The aim is to prepare the ground
for an improved decision support for revenue management analysts.
WC43
208A-MCC
Information Elicitation
Sponsored: Decision Analysis
Sponsored Session
Chair: Majid Karimi, Waterloo, ON, Canada,
1 - Accept-reject Mechanisms For Team Formation
Yevgeniy Vorobeychik, Vanderbilt University, Nashville, TN, United
States, Jian Lou, Martin van der Linden,
Gregory Leo, Pranav Batra, Chen Hajaj, Myrna Wonders
Team (coalition) formation has been studied from a number of perspective.
However, treatment of this problem from the point of view of mechanism design
has received relatively little attention, with few concrete and general mechanisms
proposed. We describe and motivate a class of accept-reject mechanisms for this
problem, and demonstrate their theoretical properties (both positive and
negative). These mechanisms are computationally very challenging, and we
describe several algorithmic approaches to these.
2 - Prediction Market Equilibria Via Substitutes And Complements
Bo Waggoner, Harvard University, Computer Science,
Based on joint work with Yiling Chen. I will propose definitions for when pieces
of information, modeled as signals, can be considered substitutes or complements.
We will see that substitutes (respectively, complements) characterize cases where
prediction market participants rush to truthfully report (respectively, delay as long
as possible). I will try to give a geometric picture for how probabilistic structure of
signals and choice of scoring rule interact to produce substitutes or complements,
and discuss implications for designing markets.
3 - Arbitrage-free Combinatorial Market Making Via
Integer Programming
Christian Kroer, Carnegie Mellon University, ,
Miroslav Dudík, Sébastien Lahaie, Sivaraman Balakrishnan
We present a new combinatorial market maker that operates arbitrage-free
combinatorial markets specified by integer programs. Although the problem of
arbitrage-free pricing with bounded loss is #P-hard, we posit that the typical case
might be amenable to modern integer programming (IP) solvers. At the crux of
our method is the Frank-Wolfe algorithm which is used to implement a Bregman
projection aligned with the market maker’s cost function, using an IP solver as an
oracle. We demonstrate the tractability and improved accuracy of our approach
on real-world prediction market data from combinatorial bets placed on the 2010
NCAA Men’s Division I Basketball Tournament.
4 - Making Science Of “Black Art”: Risk Bias In Market Scoring Rules
Majid Karimi, University of Waterloo, Faculty of Engineering,
, Stanko Dimitrov
We study market scoring rules (MSRs) prediction markets (PMs) in the presence
of risk averse or risk seeking agents. We show that agents’ submitted reports
always deviate from their beliefs. This means, in most cases it is impossible for a
MSR PM to elicit an agent’s belief. We introduce a measure to calculate the
deviation between an agent’s report, and her personal belief. We find that the
deviation of a MSR PM is related to the amount of market depth provided by the
MSR’s cost-function PM. We use the relation between deviation and market
depth to present the first systematic approach to determine the optimal amount of
market depth, an activity that has been described as “black art” in the literature.
WC44
208B-MCC
Strategic Management Decision Making
Sponsored: Decision Analysis
Sponsored Session
Chair: Dharma Kwon, University of Illinois at U-C, Champaign, IL,
United States,
1 - Dynamic Sourcing Decisions In Presence Of Technology
Spillover Risks
Yunke Mai, Duke University, Sasa Pekec
We study optimal dynamic sourcing decisions of a serial innovator. There are two
types of manufacturers: competitive ones who might pose technology spillover
risks, and non-competitive ones. Manufacturers’ production capabilities are
uncertain, impacting success of innovations. Single period contracts allow
learning about the uncertainty by observing the production outcome. Long-term
contracts lock the innovator with one manufacturer but guarantee a low
wholesale price. We describe optimal strategies and show that contracting with a
competitive manufacturer could be attractive as it allows for sharing the
innovation risk in exchange for the technology spillover exposure.
WC44