Abstract: Initial Coin Offerings (ICOs) are an emerging form of fundraising for Blockchain-based startups. We propose a simple model of matching supply with demand with ICOs by companies involved in production of physical products. We examine how ICOs should be designed---including optimal token floating and pricing---in the presence of product demand uncertainty, make predictions on ICO failure, and discuss the implications on firm operational decisions and profits. We show that ICOs would be best suited for higher-margin products, and generally lead to underproduction and lower-than-optimal profits versus first best. However, these inefficiencies fade as margins increase. Somewhat paradoxically, this risky form of financing generally leads to lower profit variance, and renders firm profits less sensitive to demand uncertainty.
Abstract: Using airlines as a backdrop, we study optimal overbooking policies with endogenous customer demand, i.e., when customers can internalize their expected cost of being "bumped". We first consider the traditional setting in which compensation for bumped passengers is fixed and booking limits are the airline's only form of control. We provide sufficient conditions under which demand endogeneity leads to lower overbooking limits in this case. We then consider the broader problem of joint control of ticket price, bumping compensation and booking limit. We show that price and compensation can act as substitutes, which reduces the general problem to a more tractable one-dimensional search for optimal overbooking compensation, and effectively allows the value of flying to be decoupled from the cost of being bumped. Finally, we extend our analysis to the case of auction-based compensation schemes, and demonstrate that these generally outperform fixed compensation schemes. Numerical experiments to gauge magnitudes suggests that fixed-compensation policies that account for demand endogeneity can significantly outperform those that do not, and that auction-based policies bring smaller but significant additional gains.
Wharton Math Camp, Summer 2017 & Summer 2018 (Instructor)
OIDD 612, Business Analytics, Spring 2018, Spring 2019 (Q3) (TA)
OIDD 101, Intro to Operations and Information Decisions, Spring 2017 (TA)