This monograph presents a stylized model of dynamic coordination problem under uncertainty, which is a common issue in platform markets. We consider a scenario where developers make risky investments in developing a complementary good. The optimal decisions of consumers and developers are intertwined and depend on the expectations regarding the other side’s behavior. Consumers joining the platform before the full development of the complementary good obtain the basic utility as well as real options to benefit from possible future improvements. The platform owner influences the outcome of the coordination problem through its price policy that trades off between building an earlier consumer base versus extracting profits from early adopters. When the cost of developing the complementary good is small, a price-skimming policy is optimal. Interestingly, price-skimming remains optimal when the cost is high as long as the value of the complementary good is either small or relatively high. For intermediate values, however, the platform adopts a price-penetration policy.
This monograph contains six thought-leading contributions on various topics related to supply chain finance and risk management. The issue culminated out of a recent (May 14-16, 2021) mini-conference on “Supply Chain Finance and Risk Management” organized by The Boeing Center for Supply Chain Innovation (BCSCI), Olin Business School, Washington University in St. Louis.
In “Quadratic Hedging and Optimization of Option Exercise Policies”, Nicola Secomandi explores a model for optimizing option exercise policies under any given equivalent martingale measure and anchoring quadratic hedging to the resulting value of the policy. In “Operations Revenue Insurance”, Paolo Guiotto, Andrea Roncoroni and Roméo Tédongap propose a new framework for the optimal design of a financial instrument to hedge nonclaimable risk embedded by business and operating revenues. In “Crowdfunding Adoption in the Presence of Word-of-Mouth Communication”, Fasheng Xu, Xiaomeng Guo, Guang Xiao and Fuqiang Zhang investigate a firm’s optimal funding choice when launching a product in the market with word-of-mouth communication. In “Data Sharing in Innovations”, Zhi Chen and Jussi Keppo discuss how the success of data-driven products depends on a firm’s access to big data and the challenges of data collection and sharing in innovations using the autonomous vehicle industry as an example. In “Coordination Problems in Platform Markets Under Uncertainty”, Hamed Ghoddusi presents a dynamic coordination problem under uncertainty that is common in platform markets and provides novel insights on this problem between two sides of a platform under uncertainty. In “Value Games”, Matthew J. Sobel shows that insights and algorithms based on sequential games with a profit criterion and negligible bankruptcy risk can be adapted to maximize value.
Foundations and Trends® in Technology, Information and Operations Management, Volume 15, Issue 3 Special Issue: Thought-leadership in Supply Chain Finance and Risk Management
See the other articles that are also part of this special issue.