Gérard Cachon

Gérard Cachon, Tolga Dizdarer, Gerry Tsoukalas (Working), Pricing Control and Regulation on Online Service Platforms.

Abstract: Online service platforms enable customers to connect with a large population of independent servers and operate successfully in many sectors, including transportation, lodging, and delivery, among others. We study how prices are chosen and fees are collected on the platform. The platform could assert full control over pricing despite being unaware of the servers’ costs (e.g., ride sharing). Or the platform could allow unfettered price competition among the servers (e.g., lodging). This choice influences both the amount of supply available and the overall attractiveness of the platform to consumers. When the platform collects revenue via a commission or a per-unit fee, neither price delegation strategy dominates the other. However, the platform’s best payment structure is simple and easy to implement - it is merely the combination of a commission and a per-unit fee (which can be negative, as in a subsidy). Furthermore, this combination enables the delegation of price control to the servers, which may assist in the classification of the servers as contractors rather than employees. A similar approach can be used to maximize profits by fully disintermediated platforms (i.e., no central owner), such as those enabled by blockchain technology.

Gérard Cachon and Dawson Kaaua (Working), Serving Democracy: Evidence of Voting Resource Disparity in Florida.

Gérard Cachon and Dawson Kaaua (Working), Democracy on the Line: Polling Place Closures and their Estimated Impact on Wait Times in the 2016 Presidential Election in Georgia.

Gérard Cachon and Christian Terwiesch, Operations Management (: McGraw Hill, 2019)

Gérard Cachon, Santiago Gallino, Jiaqi (Joseph) Xu, Free Shipping Is Not Free: A Data-Driven Model to Design Free-Shipping Threshold Policies.

Abstract: Online retailers often offer free shipping threshold policies: customers who purchase more than a threshold amount are not charged an additional fee for shipping. This paper provides a data-driven analytical model to (i) assess the profitability of a retailer’s current shipping threshold policy and (ii) identify the best freeshipping threshold policy for a retailer. The model is estimated from actual transaction and product return data. The model explicitly accounts for changes in customer shopping behavior due to a free shipping threshold, including strategically adding items to a shopping basket to receive free shipping, which we call orderpadding, and the subsequent adjustment in product return decisions. Roughly speaking, according to our model, a retailer that offers a free shipping threshold policy should set the threshold slightly abovethe average shopping basket amount. We calibrate our model to data from an online apparel retailer and determine that its decision to offer a lower free shipping threshold reduced its profitability considerably.This result is robust to a number of assumptions regarding the impact on long-run sales and possible price adjustments. We conclude that free shipping threshold policies are profitable only under a limited set of restrictive conditions.

Gérard Cachon, Santiago Gallino, Marcelo Olivares (2018), Does Adding Inventory Increase Sales? Evidence of a Scarcity Effect in U.S. Automobile Dealerships, Management Science.

Abstract: What is the relationship between inventory and sales? Clearly, inventory could increase sales: expanding inventory creates more choice (options, colors, etc.) and might signal a popular/desirable product. Or, inventory might encourage a consumer to continue her search (e.g., on the theory that she can return if nothing better is found), thereby decreasing sales (a scarcity effect). We seek to identify these effects in U.S. automobile sales. Our primary research challenge is the endogenous relationship between inventory and sales — e.g., dealers influence their inventory in anticipation of demand. Hence, our estimation strategy relies on weather shocks at upstream production facilities to create exogenous variation in downstream dealership inventory. We find that the impact of adding a vehicle of a particular model to a dealer’s lot depends on which cars the dealer already has. If the added vehicle expands the available set of sub-models (e.g., adding a four-door among a set that is exclusively two-door), then sales increase. But if the added vehicle is of the same sub-model as an existing vehicle, then sales actually decrease. Hence, expanding variety across sub-models should be the first priority when adding inventory—adding inventory within a sub-model is actually detrimental. In fact, given how vehicles were allocated to dealerships in practice, we find that adding inventory actually lowered sales. However, our data indicate that there could be a substantial benefit from the implementation of a “maximizes variety, minimize duplication” allocation strategy: sales increase by 4.4 percent without changing the number of vehicles at each dealership, and a 5.2 percent is possible if inventory is allowed to decrease by 2.8 percent (and no more than 10 percent at any one dealer).

Gérard Cachon See my personal website (link above) for research papers (https://www.gerard-cachon.com).