During 2001, many European markets for mobile phones reached saturation. Because of this, mobile phone operators started to shift their focus from growth and market share to cutting costs. One way to do this is to reduce spending on international calls. These calls are routed through network operating companies called carriers. The carriers charge per call-minute for each destination, and they often use a discount on total business volume to price their services. A mobile phone operator must decide how to allocate destinations to carriers. V-Mobile, a mobile phone operator in Denmark, must make such a decision for a T-month planning horizon when it has C carriers to choose from, D destinations for its customers’ calls, and there are I price intervals for a typical carrier. (These intervals define a carrier’s discount structure.) The inputs include the following: The price per call-minute for destination d from carrier c in price interval i in month t The (forecasted) number of call-minutes for destination din month t The lower and upper limits for carrier c in price interval i The lower and upper limits on capacity (number of call-minutes) for carrier c in month t The penalty per call-minute (to discourage poor-quality options) for carrier c to destination din month t V-Mobile wants to find a least-cost way of routing its call-minutes through the various carriers. Of course, it hopes to take advantage of price discounts offered by the carriers. The file Ch_6_Case.xlsx (attached) provides inputs for one version of V-Mobile’s problem. This version has T =2, C= 3, D= 5, and I= 3. The decision variables should include the following: The number of call-minutes routed through carrier c to destination d in price interval i in month t A binary variable for each carrier c and price interval i combination that equals 1 if the total call-minutes for this carrier (over all destinations and months) falls in price interval i, and equals 0 otherwise. Problem V-Mobile has developed the following proposed allocation plan for its international calls over the next two months: Month 1 Month 2 Carrier 1 Destination 2: 1000 call-minutes Carrier 1 Destination 1: 700 call-minutes Destination 2: 1000 call-minutes Carrier 2 Destination 1: 500 call-minutes Destination 4: 1200 call-minutes Carrier 2 Destination 4: 1500 call-minutes Carrier 3 Destination 3: 800 call-minutes Destination 5: 900 call-minutes Carrier 3 Destination 3: 600 call-minutes Destination 5: 700 call-minutes Multiple executives are concerned that their proposed allocation plan will not minimize costs. They’ve reached out to you to determine the optimal allocation plan for its international calls. You must: Develop an optimization model to solve the problem; Write a short (1 page) executive summary on your findings and recommendations, including: An evaluation of V-Mobile’s proposed allocation plan Your proposed allocation plan Any other analyses or recommendations As part of your analysis, the executives would also like to know the impact of dropping Carrier 2 due to their minimum call-minute requirements per month.
During 2001, many European markets for mobile phones reached saturation. Because of this, mobile phone operators started to shift their focus from growth and market share to cutting costs. One way to do this is to reduce spending on international calls. These calls are routed through network operating companies called carriers. The carriers charge per call-minute for each destination, and they often use a discount on total business volume to price their services. A mobile phone operator must decide how to allocate destinations to carriers. V-Mobile, a mobile phone operator in Denmark, must make such a decision for a T-month planning horizon when it has C carriers to choose from, D destinations for its customers’ calls, and there are I price intervals for a typical carrier. (These intervals define a carrier’s discount structure.) The inputs include the following: The price per call-minute for destination d from carrier c in price interval i in month t The (forecasted) number of call-minutes for destination din month t The lower and upper limits for carrier c in price interval i The lower and upper limits on capacity (number of call-minutes) for carrier c in month t The penalty per call-minute (to discourage poor-quality options) for carrier c to destination din month t V-Mobile wants to find a least-cost way of routing its call-minutes through the various carriers. Of course, it hopes to take advantage of price discounts offered by the carriers. The file Ch_6_Case.xlsx (attached) provides inputs for one version of V-Mobile’s problem. This version has T =2, C= 3, D= 5, and I= 3. The decision variables should include the following: The number of call-minutes routed through carrier c to destination d in price interval i in month t A binary variable for each carrier c and price interval i combination that equals 1 if the total call-minutes for this carrier (over all destinations and months) falls in price interval i, and equals 0 otherwise. Problem V-Mobile has developed the following proposed allocation plan for its international calls over the next two months: Month 1 Month 2 Carrier 1 Destination 2: 1000 call-minutes Carrier 1 Destination 1: 700 call-minutes Destination 2: 1000 call-minutes Carrier 2 Destination 1: 500 call-minutes Destination 4: 1200 call-minutes Carrier 2 Destination 4: 1500 call-minutes Carrier 3 Destination 3: 800 call-minutes Destination 5: 900 call-minutes Carrier 3 Destination 3: 600 call-minutes Destination 5: 700 call-minutes Multiple executives are concerned that their proposed allocation plan will not minimize costs. They’ve reached out to you to determine the optimal allocation plan for its international calls. You must: Develop an optimization model to solve the problem; Write a short (1 page) executive summary on your findings and recommendations, including: An evaluation of V-Mobile’s proposed allocation plan Your proposed allocation plan Any other analyses or recommendations As part of your analysis, the executives would also like to know the impact of dropping Carrier 2 due to their minimum call-minute requirements per month.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter14: Indirect Price Discrimination
Section: Chapter Questions
Problem 14.2IP
Related questions
Question
During 2001, many European markets for mobile phones reached saturation. Because of this, mobile phone operators started to shift their focus from growth and market share to cutting costs. One way to do this is to reduce spending on international calls. These calls are routed through network operating companies called carriers. The carriers charge per call-minute for each destination, and they often use a discount on total business volume to price their services. A mobile phone operator must decide how to allocate destinations to carriers.
V-Mobile, a mobile phone operator in Denmark, must make such a decision for a T-month planning horizon when it has C carriers to choose from, D destinations for its customers’ calls, and there are I price intervals for a typical carrier. (These intervals define a carrier’s discount structure.) The inputs include the following:
- The price per call-minute for destination d from carrier c in price interval i in month t
- The (
forecasted ) number of call-minutes for destination din month t - The lower and upper limits for carrier c in price interval i
- The lower and upper limits on capacity (number of call-minutes) for carrier c in month t
- The penalty per call-minute (to discourage poor-quality options) for carrier c to destination din month t
V-Mobile wants to find a least-cost way of routing its call-minutes through the various carriers. Of course, it hopes to take advantage of price discounts offered by the carriers. The file Ch_6_Case.xlsx (attached) provides inputs for one version of V-Mobile’s problem. This version has T =2, C= 3, D= 5, and I= 3. The decision variables should include the following:
- The number of call-minutes routed through carrier c to destination d in price interval i in month t
- A binary variable for each carrier c and price interval i combination that equals 1 if the total call-minutes for this carrier (over all destinations and months) falls in price interval i, and equals 0 otherwise.
Problem
V-Mobile has developed the following proposed allocation plan for its international calls over the next two months:
|
Month 1 |
Month 2 |
|
Carrier 1
|
Carrier 1
|
|
Carrier 2
|
Carrier 2
|
|
Carrier 3
|
Carrier 3
|
Multiple executives are concerned that their proposed allocation plan will not minimize costs. They’ve reached out to you to determine the optimal allocation plan for its international calls.
You must:
- Develop an optimization model to solve the problem;
- Write a short (1 page) executive summary on your findings and recommendations, including:
- An evaluation of V-Mobile’s proposed allocation plan
- Your proposed allocation plan
- Any other analyses or recommendations
- As part of your analysis, the executives would also like to know the impact of dropping Carrier 2 due to their minimum call-minute requirements per month.
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