یک مدل کیفیت محصول استراتژیک و مشوق های بهبود فرایند

In many production firms it is common practice to financially reward managers for firm performance improvement. The use of financial incentives for improvement has been widely researched in several analytical and empirical studies. Literature has also addressed the strategic effect of incentives, in particular what the effect of certain incentive structures would be on the behavior of a firm's competitor(s). Most of these studies, however, focus on sales incentives. In this paper we investigate the effects of strategic incentives for product quality and process improvement using a game theoretic model that considers two owner–manager pairs in competition. We find that if one of the managers is told to only maximize firm profits (which in fact is similar to profit incentives), the other manager will be offered positive incentives for product quality and process improvement. These product quality and process improvement incentives result in increased profits, at the expense of the profits of the other firm. Also we find that if both firm owners have the possibility to offer incentives for product quality and process improvement, they will both do so. However, this equilibrium essentially entails a prisoner's dilemma, in which the two firms earn lower profits compared to a situation in which the owners instruct their managers only to maximize firm profits. Insights into the normalization of the problem and the aggregation of multiple product quality and process improvement variables are also discussed.

1.1. Research motivation In this paper we study the managerial incentives firm owners use to stimulate their managers who make decisions in a competitive context. More specifically, we focus on both the internal and external effects of incentives for process improvement and product quality, which are generally seen as important variables in the production strategy arena. The use of incentives for process improvement and product quality is not uncommon, as empirical research (e.g. Ittner and Larcker, 1995 and Murphy, 1999) and many annual firm reports indicate. However, whereas the effect of those incentives on the ‘internal’ decisions of firm owners and managers is relatively well understood (for instance by studying it using principal-agent theory), the external effects of these incentives (e.g. how incentive structures may directly influence the behavior of a firm's competitor) have hardly been the object of research. Whereas the competitive effect of incentives for variables typical for production economics is underexposed in the literature, there exists a great wealth of research on competitive sales incentives. This stream research took off with the work of Fershtman and Judd (1987) and Sklivas (1987). They showed that owners will almost never tell their managers to maximize firm profits in a competitive situation. They find that firms rather offer their managers observable sales incentives to stimulate them to sell more. Their main explanation was that observable incentives serve as a strategic commitment device towards competitors. Competitors will interpret these incentives as a sign of aggressive sales behavior, inducing them to alter their production decisions in a way which is beneficial to the firm offering sales incentives. However, since all firm owners have the possibility to act as such a Stackelberg leader towards the rival firm's manager, in equilibrium both firms will stimulate their managers to focus on sales maximization. In this paper we investigate whether the same results hold when process improvement and product quality incentives are concerned. 1.2. Background literature Our work combines two research streams: (1) research on the strategic interaction between firms, (2) research on strategic incentives. The first research stream mostly consists of non-cooperative game theory models. Bonanno and Haworth (1998), for instance, investigated when firms opt for process improvement and product improvement, defining product improvement as the investment in product quality. Banker et al. (1998) investigated how equilibrium levels of quality change as competition intensifies. Tseng (2004) and Waller and Christy (1992) studied firms' investments in manufacturing flexibility in the light of several industry characteristics. The second research stream considers what kind of incentives firm owners give to their managers to stimulate profit maximizing behavior, and how these incentives influence the behavior of the firm's rival(s). Many papers on this topic depart from the work by Fershtman and Judd (1987) and Sklivas (1987). Ishibashi (2001), for example, investigated whether their results (which are based on Cournot competition) also hold when firms compete in product quality and price. In later work researchers addressed the effects of incentives for market share (e.g. Jansen et al., 2012) and relative performance evaluation (e.g. Asseburg and Hofmann, 2010). In a noteworthy paper, Balasubramanian and Bhardwaj (2004) compared a perfect coordination situation, in which firm owners instruct their managers to maximize profits by making pricing and product quality decisions, with the situation in which an operations manager bargains with a marketing manager before entering the product market. Two recent papers have extended previous research by focusing on incentive contracts that more explicitly capture the decisions of the production manager. Overvest and Veldman (2008) studied quantity (i.e. Cournot) competition in a situation where managers are directly rewarded for process improvement. They find that in equilibrium, the bonus that is given to process improvement is always positive. In Veldman et al. (2013) this model has been extended in several directions. In particular, in this paper it is found that the results of Overvest and Veldman (2008) also hold for competing firms that significantly differ in terms of their underlying cost structure. The study shows that uncertainty in the success of process improvement decisions dampen, but not eliminate, positivity of the process improvement weight. Veldman et al. (2013) also studied the effects of process improvement incentives on firm profits. They found that the use of process improvement incentives always results in a prisoner's dilemma for the high-cost producer. However, whether or not a prisoner's dilemma occurs for the low-cost producer depends on the difference between both firms' cost structures: in case this difference is large, the use of process improvement incentives increases profits for the low-cost producer (compared to the case where a manager is rewarded for profit only). The current paper extends the work by Overvest and Veldman (2008) and Veldman et al. (2013) in two ways. First, whereas these authors based their models on Cournot competition, the demand function in the current paper is an extended Bertrand model with product quality added as a strategic variable. Second, whereas these authors only considered incentives for process improvement, in the current paper the use and effects of incentives for product quality is included as well. Since in practice managerial remuneration is often based on more than one (strategic) variable, this paper will thus be better able to explain the use and workings of these compound incentive contracts. 1.3. Research question and approach The main question in this paper is as follows: Are managers rewarded for process improvement and product quality in equilibrium? What are the effects of considering upfront incentives for process improvement and product quality on optimal product quality, prices and profits? We study this problem by modeling a duopoly consisting of two owner-manager pairs. The relevant decisions are made in three stages. In the first stage, the firm owners will either instruct their manager to maximize firm profits, or provide him/her with incentives for process improvement and product quality. Such incentives can both influence the decisions of the manager to whom the incentives are given, as well as serve as a signal towards the competitor, allowing him to act as a Stackelberg leader. In the second stage, the managers will choose the appropriate process improvement and product quality levels. In the third stage, pricing decisions will be made after which the market clears and managers are paid accordingly. Considering that the two firm owners can reward their managers for production economics decisions or not, a 2×2 matrix of cases can be made. In the next section we present each of these cases.

The use of incentives to stimulate managerial behavior is common practice for many industrial fi rms, although in a monopolistic setting this practice seems to be fi nancially unjusti fi ed. In a duopolistic setting, however, a fi rm owner may wish to stimulate his/her manager to maximize a function other than pro fi t, if such an incentive scheme also serves as a tool to in fl uence the behavior of the rival fi rm. We study the optimal strategic incentives for two important yet very distinct production decision s: process improvement and pro- duct quality. In the asymmetric case where only one fi rm owner can instruct his/her manager to maximize a non-pro fi tfunction,we fi nd that this fi rm owner sets positive process improvement and product quality incentive weights in order to manipulate the behavior of the rival fi rm ' s manager. In the symmetric case, both fi rm owners set positive process improvement and p roduct quality incentive weights. In turn, these incentives lead to higher process improvement levels, higher product quality levels, and lower prices compared toa situation in which the managers are instructed to maximize pro fi ts only.However,eventhoughtheprovisionofpositiveincentivesisa Nash equilibrium, both fi rm owners will also earn lower pro fi ts. In other words, our case comprises a classic prisoner ' s dilemma. At the practical level, our work may inspire decision makers to rethink their managerial remuneration strategies, particularly when incentive schemes are visible to rival fi rms. On the one hand incentive schemes can be an effective way to change the behavior of rival fi rms. On the other hand the collective choice for positive incentives for variables such as process improvement and product quality leads to lower pro fi ts. Thus, it is important for fi rm owners to be able to foresee the internal relationships of rival fi rms, in particular the way the rival manager is compensated. Our results suggest that visible contractual inertia (i.e. a fi rm ' sinabilityto change managerial contracts in the short term) makes a fi rm an easy victim for aggressive behavior by the rival fi rm. At the theoretical level, our work extends existing studies into the competitive interaction between fi rms when process improvement, product quality and pricing decisions are concerned. In particular we apply ideas originated in the strategic incentive design literature to two key production decisions. Future work could extend our frame- work by allowing bargaining processes between different depart- mental managers (e.g. marketing and manufacturing). Such an extension would tell us more about the (potential) tradeoffs that may exist between process improvement and product quality. In this paper we assume no ex ante differences between fi rms, by de fi ning cost parameters, price volatility parameters and quality volatility parameters that are equal for both fi rms. The use of fi rm- speci fi c cost parameters, as is done in Veldman et al. (2013) ,would yield the opportunity to study fi rm cost asymmetries. A signi fi cant difference in m 1 and m 2 ,forinstance,appliestothecasewhereasmall fi rm (with low m 1 ) bears little investment cost for an increase in the level of process improvement compared to a large fi rm (facing high m 2 ) to which a process improvement level increase is much costlier. Similar cases could be studied assu ming asymmetric brand equities (e.g. expressed using a fi rm speci fi c price volatility parameter β 1 ≠ β 2 or quality volatility parameter γ 1 ≠ γ 2 ). Future research could shed more light on the interaction between multiple fi rm-speci fi c parameters, the structure of incentive weights, and equilibrium pro fi ts. Next to this, it would be interesting to examine how the prisoner ' s dilemma trap can be successfully overcome. The work of Berr (2011) might be a good starting point for such an endeavor. Finally, our work could open up a new stream of research on how managerial incentive contracts can affect decisions in supply chains by departing from papers such as Yang and Zhou (2006) and Zhao and Shi (2011) . For example, the visible incentives a fi rm owner offers his/her manager are likely to affect the decisions of the rival manager ' s purchasing (strategy) decisions. Such incentives would intensify competition, which could in fl uence fi rm ' sdecisionsto single or dual source. It would be interesting to see what type of incentives is mostly likely to secure supplier resources, in case there exists considerable scarcity in the supply market