Training, Production, and Channel Separation in ITC's E-Choupal Network

Production and Operations Management, August 2011

32 Pages Posted: 27 Nov 2012

See all articles by Ying-Ju Chen

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management

J. George Shanthikumar

Purdue University - Krannert School of Management

Zuo-Jun Max Shen

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR)

Date Written: November 26, 2012

Abstract

In recent years, I.T.C. Limited (hereafter ITC) developed the "e-Choupals" to the rural areas of India. In this new business model, ITC reaches implicit agreements with some farmers (inside the network) that they can sell the products directly to ITC at the market price in the local market, but allow the farmers, both inside and outside the network, to access valuable information through the e-Choupals. In this paper, we investigate ITC's incentive of offering such opportunities, especially to those farmers outside the network, and analyze the farmers' strategic quantity decisions. We show that the implicit agreement behaves as a formal contract, regardless of the price elasticity of the local market: Once reaching an agreement with ITC, the farmers always give priority to delivering directly to ITC. The e-Choupal network leads naturally to the complete separation of selling channels, provided that ITC's capacity constraint is not tight. Surprisingly, in a variety of scenarios, ITC finds it optimal to provide the best available training to the farmers outside the network. We further show that our results are not prone to the potential cheating in the mandi system, the possible exploitation via postponed payments, and the stochastic effects on the market-clearing price.

Keywords: e-Choupal, India agriculture, incentives, socially and environmentally responsible supply chains

Suggested Citation

Chen, Ying-Ju and Shanthikumar, J. George and Shen, Zuo-Jun Max, Training, Production, and Channel Separation in ITC's E-Choupal Network (November 26, 2012). Production and Operations Management, August 2011, Available at SSRN: https://ssrn.com/abstract=2181218

Ying-Ju Chen (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management ( email )

Clear Water Bay
Kowloon
Hong Kong

J. George Shanthikumar

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Zuo-Jun Max Shen

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR) ( email )

IEOR Department
4135 Etcheverry Hall
Berkeley, CA 94720
United States

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