Informs Annual Meeting Phoenix 2018

INFORMS Phoenix – 2018

SA55

employees whose decisions are observed are less likely to choose the expensive supplier, and this behavior is aligned with what is considered more socially appropriate. Thus, we argue that these peer-pressure effects are better explained by a model of social norms rather than a model of reciprocity. 2 - On the Non-equivalence of Trade-ins and Upgrades in the Presence of Framing Effect: Experimental Evidence and Implications for Theory Mahdi Mahmoudzadeh, Georgia Institute of Technology, Scheller College of Business, 800 West Peachtree Street NW, Atlanta, 30308, Georgia Manufacturers of durable goods often buy back older versions of their products from customers to induce them to switch to improved versions. Classical model has long ignored the framing of these buyback schemes, i.e., trade-ins or upgrades, and its relevance for consumer behavior and theory. Using reference- point shift mechanism, through controlled experiments we find that the alternative frames are not isomorphic and that they shift customers’ reference points. We then use the experimental findings to extend a reference-dependence version of the classical model of trade-ins and upgrades and show that the behavioral extension modifies predictions of the classical model in line with reality. 3 - Sustainable Operations Versus Corporate Social Responsibility: How Value Chain Transparency Influences Choice Ryan Buell, Harvard Business School, Morgan Hall 429, Boston, MA, 02163, United States, Basak Kalkanci Amid calls for value chain transparency and greater social and environmental stewardship, companies employ a variety of strategies to mitigate the adverse effects of their operations on people and the environment. Some engage in internal sustainability initiatives, such as paying living wages to workers or investing in innovations that reduce the environmental impact of their processes. Others engage in external initiatives, such as contributing to social causes, or offsetting their emissions to compensate for the impact of their processes. Through a series of field and lab experiments, we investigate how and when transparency into these internal and external efforts affect consumer choice. 4 - Mean Service Metrics: Biased Quality Judgement and the Customer-server Quality Gap Robert Batt, Wisconsin School of Business, UW-Madison, 5279 Grainger Hall, 975 University Ave., Madison, WI, 53706, United States, Jordan D. Tong We show that a commonly-observed data aggregation technique can lead to systematic biases in how people infer service quality due to a mathematical gap between the quality that servers deliver and that which customers experience. We use a stylized model to characterize how the gap depends on the structure of the service environment, and we use lab experiments to show that people generally fail to fully correct for differences between server-level and customer-experienced metrics. Finally, we use secondary data in the contexts of education and the air travel industry to get a sense of the potential magnitude of judgment biases in real-world settings.

n SA53 North Bldg 232A Auction Markets with Non-convexities Sponsored: Auction and Marketing Design Sponsored Session Chair: Robert Day, University of Connecticut, Storrs, CT, 06269-1041, United States 1 - Investment Effects of Pricing Schemes for Non-convex Markets Jacob Mays, Northwestern University, 2145 Sheridan Road, Room C230, Evanston, IL, 60208, United States Jacob Mays, Federal Energy Regulatory Commission, Washington, DC, United States, David Morton, Richard O’Neill Non-convex markets, such as those organized by electricity system operators, lack uniform clearing prices. To help resolve the incentive compatibility issues that arise when clearing these markets, operators have introduced a variety of price formation and uplift payment schemes. We investigate the impact that the choice of pricing scheme can have on generator entry and exit decisions. Our results suggest that despite the presence of fixed production cost elements, prices derived from marginal costs support the optimal capacity mix. 2 - Economizing the Uneconomic: Markets for Sustainable, Reliable, and Price Efficient Electricity Mohammad Rasouli, Stanford University, 473 Via Ortega, Room 268, MS 4020, Stanford, CA, 94305, United States, Demosthenis Teneketzis The electricity policy targets aim to provide sustainable and reliable electricity with efficient prices under uncertain demand. Any solution addressing a subset of the policy targets can affect the others. Whereas most of the existing studies focus on one of the targets and analyze existing solutions, we focus on implementing all of the above policy targets by adopting a design approach. We develop a framework for designing efficient auctions with constraints that results in market implementations of the above electricity policy targets. Our results highlight that all policy targets can be achieved without any price-cap or market monitoring, and provide clear answers to major policy debates. 3 - Fast Core Pricing for Rich Advertising Auctions Rad Niazadeh, Stanford University, 353 Serra Mall, Gate BLDG, Office 484, Stanford, CA, 94305, United States, Jason Hartline, Nicole Immorlica, Mohammad Reza Khani, Brendan Lucier As online ad offerings become increasingly complex, the sale of web advertising space increasingly resembles a combinatorial auction with complementarities. In this setting, GSP is not well-defined and truthful combinatorial auctions, e.g. VCG, can yield unacceptably low revenue. Core selecting auctions (Day and Milgrom [2007]) boost revenue. Motivated by this, we give a combinatorial algorithm to find a bidder-optimal core point with almost linear calls to welfare- maximization oracle. We also run experiments on the Microsoft Bing Ad Auction platform with decorations: core pricing generates almost 100% more revenue than VCG, and 20% more revenue than the standard GSP auction on average. 4 - Simple and Approximately Optimal Pricing for Proportional Complementarities Kira Goldner, University of Washington, Seattle, WA, United States Most work in optimizing revenue with complementary valuations models the buyer’s value for a bundle as additive over independent values for each subset. Instead, we model the complementarities as proportional to the buyer’s base valuations for each item, and these proportionalities are known market parameters. We give a simple pricing scheme that achieves approximately-optimal revenue and affirms the intuition that selling separately is not a good mechanism to use in the case of complementaries. Our scheme achieves an approximation factor of a constant for pairwise item boosts, and when the boosts are for larger subsets given by a hypergraph, of the minimum of two parameters of the hypergraph. n SA54 North Bldg 232B BOM Session (TONG) Sponsored: Behavioral Operations Management Sponsored Session Chair: Jordan Tong, PhD, University of Wisconsin, Madison, WI, United States 1 - Increased Transparency in Procurement: The Role of Peer-Effects Ignacio Rios, Stanford, Ruth Beer, Daniela Saban We study the effects of increased transparency in settings where purchasing decisions are delegated to individual employees as opposed to being centrally managed by the organization. We show that there exists a spillover region where an employee is more likely to choose the expensive supplier when he observes that his peer did so, and we confirm this finding experimentally. We also find that

n SA55 North Bldg 232C Topics in New Product Development General Session Chair: Evgeny Kagan, Ann Arbor, MI, 48103, United States 1 - Smart Manufacturing via Crowd Sourcing

Onesun Steve Yoo, University College London, London, United Kingdom, Kevin F. McCardle, Christopher S. Tang

We examine a smart crowd-sourcing model of manufacturing practiced widely by leading manufacturers in China. A key feature is the use of virtual images of their products to learn whether there is sufficient demand for them before engaging in costly physical production. Using virtual images are less attractive for consumers (uncertainty of getting the item, delays), so the firms must charge a lower price. We analyze the optimal hybrid approach that combines both use of virtual images (made-to-order) and more traditional production (made-to-stock). We compare it with the current practice of some of the leading Chinese manufacturing firms (e.g., Alibaba, Gaofan), and discuss its efficacy. 2 - Truth or Funds for Your Project Jochen Schlapp, University of Mannheim, Wilhelm-Leuschner-Str. 241, Griesheim, 64347, Germany, Nektarios Oraiopoulos, Niyazi Taneri, Ozge Tuncel We examine the effectiveness of monetary incentives in eliminating managerial misconduct in competitive resource allocation processes. Whereas economic theory predicts that formal incentives should be sufficient to align managers with the organization’s best interests, our laboratory experiments reveal that current theory falls short of acknowledging the importance of the level of trust and trustworthiness between managers competing for resources. We show how an organization can induce higher levels of mutual trust, thus improving the overall effectiveness of the resource allocation process.

21