Mix Stickiness under Asymmetric Cost Information

Rick Antle, Peter Bogetoft

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Resumé

In most organizations, the agent has superior information about the relative costs of different products or activities. This handicaps the principal when the principal seeks to adjust the product mix. Our main conceptual finding is that there is “mix stickiness.” The agent’s superior information about the relative costs of different products or activities leads to an advantage for the status quo; that is, there is inertia (or stickiness) in the mix of products or activities pursued. The historical mix has an advantage because the asymmetric information about relative costs has less of an impact when the mix does not change. If the mix changes, the producer can extract information rents by claiming high costs on the least reduced or most expanded products. Only in the case of larger shifts in the environment will the mix change. Changing the mix comes with the advantage of making rationing cheaper. Our analysis gives new insight into several business practices. It suggests, for example, that for moderate downsizing, a reinforcement approach of proportionally cutting all activities (lawn mowing) is optimal. When more dramatic downsizing is called for, a reorientation approach of eliminating certain activities (divesting) is optimal. It also suggests that outsourcing may come at the cost of reduced adaptability, and it may help explain why most, if not all, healthcare systems struggle to control cost.
In most organizations, the agent has superior information about the relative costs of different products or activities. This handicaps the principal when the principal seeks to adjust the product mix. Our main conceptual finding is that there is “mix stickiness.” The agent’s superior information about the relative costs of different products or activities leads to an advantage for the status quo; that is, there is inertia (or stickiness) in the mix of products or activities pursued. The historical mix has an advantage because the asymmetric information about relative costs has less of an impact when the mix does not change. If the mix changes, the producer can extract information rents by claiming high costs on the least reduced or most expanded products. Only in the case of larger shifts in the environment will the mix change. Changing the mix comes with the advantage of making rationing cheaper. Our analysis gives new insight into several business practices. It suggests, for example, that for moderate downsizing, a reinforcement approach of proportionally cutting all activities (lawn mowing) is optimal. When more dramatic downsizing is called for, a reorientation approach of eliminating certain activities (divesting) is optimal. It also suggests that outsourcing may come at the cost of reduced adaptability, and it may help explain why most, if not all, healthcare systems struggle to control cost.
SprogEngelsk
TidsskriftManagement Science
Vol/bind65
Udgave nummer6
Sider2787–2812
Antal sider26
ISSN0025-1909
DOI
StatusUdgivet - 2019

Emneord

  • Production mix
  • Production scope
  • Asymmetric information
  • Rationing
  • Downsizing
  • Outsourcing
  • Healthcare cost

Citer dette

Antle, Rick ; Bogetoft, Peter. / Mix Stickiness under Asymmetric Cost Information. I: Management Science. 2019 ; Bind 65, Nr. 6. s. 2787–2812
@article{e9d2aa1a3a4f4aea819ce08dc3a1ac8e,
title = "Mix Stickiness under Asymmetric Cost Information",
abstract = "In most organizations, the agent has superior information about the relative costs of different products or activities. This handicaps the principal when the principal seeks to adjust the product mix. Our main conceptual finding is that there is “mix stickiness.” The agent’s superior information about the relative costs of different products or activities leads to an advantage for the status quo; that is, there is inertia (or stickiness) in the mix of products or activities pursued. The historical mix has an advantage because the asymmetric information about relative costs has less of an impact when the mix does not change. If the mix changes, the producer can extract information rents by claiming high costs on the least reduced or most expanded products. Only in the case of larger shifts in the environment will the mix change. Changing the mix comes with the advantage of making rationing cheaper. Our analysis gives new insight into several business practices. It suggests, for example, that for moderate downsizing, a reinforcement approach of proportionally cutting all activities (lawn mowing) is optimal. When more dramatic downsizing is called for, a reorientation approach of eliminating certain activities (divesting) is optimal. It also suggests that outsourcing may come at the cost of reduced adaptability, and it may help explain why most, if not all, healthcare systems struggle to control cost.",
keywords = "Production mix, Production scope, Asymmetric information, Rationing, Downsizing, Outsourcing, Healthcare cost, Production mix, Production scope, Asymmetric information, Rationing, Downsizing, Outsourcing, Healthcare cost",
author = "Rick Antle and Peter Bogetoft",
year = "2019",
doi = "10.1287/mnsc.2018.3077",
language = "English",
volume = "65",
pages = "2787–2812",
journal = "Management Science",
issn = "0025-1909",
publisher = "Institute for Operations Research and the Management Sciences",
number = "6",

}

Mix Stickiness under Asymmetric Cost Information. / Antle, Rick; Bogetoft, Peter.

I: Management Science, Bind 65, Nr. 6, 2019, s. 2787–2812.

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

TY - JOUR

T1 - Mix Stickiness under Asymmetric Cost Information

AU - Antle,Rick

AU - Bogetoft,Peter

PY - 2019

Y1 - 2019

N2 - In most organizations, the agent has superior information about the relative costs of different products or activities. This handicaps the principal when the principal seeks to adjust the product mix. Our main conceptual finding is that there is “mix stickiness.” The agent’s superior information about the relative costs of different products or activities leads to an advantage for the status quo; that is, there is inertia (or stickiness) in the mix of products or activities pursued. The historical mix has an advantage because the asymmetric information about relative costs has less of an impact when the mix does not change. If the mix changes, the producer can extract information rents by claiming high costs on the least reduced or most expanded products. Only in the case of larger shifts in the environment will the mix change. Changing the mix comes with the advantage of making rationing cheaper. Our analysis gives new insight into several business practices. It suggests, for example, that for moderate downsizing, a reinforcement approach of proportionally cutting all activities (lawn mowing) is optimal. When more dramatic downsizing is called for, a reorientation approach of eliminating certain activities (divesting) is optimal. It also suggests that outsourcing may come at the cost of reduced adaptability, and it may help explain why most, if not all, healthcare systems struggle to control cost.

AB - In most organizations, the agent has superior information about the relative costs of different products or activities. This handicaps the principal when the principal seeks to adjust the product mix. Our main conceptual finding is that there is “mix stickiness.” The agent’s superior information about the relative costs of different products or activities leads to an advantage for the status quo; that is, there is inertia (or stickiness) in the mix of products or activities pursued. The historical mix has an advantage because the asymmetric information about relative costs has less of an impact when the mix does not change. If the mix changes, the producer can extract information rents by claiming high costs on the least reduced or most expanded products. Only in the case of larger shifts in the environment will the mix change. Changing the mix comes with the advantage of making rationing cheaper. Our analysis gives new insight into several business practices. It suggests, for example, that for moderate downsizing, a reinforcement approach of proportionally cutting all activities (lawn mowing) is optimal. When more dramatic downsizing is called for, a reorientation approach of eliminating certain activities (divesting) is optimal. It also suggests that outsourcing may come at the cost of reduced adaptability, and it may help explain why most, if not all, healthcare systems struggle to control cost.

KW - Production mix

KW - Production scope

KW - Asymmetric information

KW - Rationing

KW - Downsizing

KW - Outsourcing

KW - Healthcare cost

KW - Production mix

KW - Production scope

KW - Asymmetric information

KW - Rationing

KW - Downsizing

KW - Outsourcing

KW - Healthcare cost

UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954921352320&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes

U2 - 10.1287/mnsc.2018.3077

DO - 10.1287/mnsc.2018.3077

M3 - Journal article

VL - 65

SP - 2787

EP - 2812

JO - Management Science

T2 - Management Science

JF - Management Science

SN - 0025-1909

IS - 6

ER -