Becoming extremely busy over the next few months, Sheen decided to hand over the retailing portion of her business to another Hamptonshire resident. Ralph Armentrout offered to run the newsstand from 6 a.m. to 10 a.m. and pay the daily rent of $ 30 to the landlord. Based on his review of a copy Anna sent him the night before the paper would be sold, Ralph would estimate demand for the Express and place an order with the printer. The Newspapers would be delivered to the newsstand by 6 a.m. the following morning. Ralph would be responsible for any newspapers left unsold at the end of the day.

a. Assuming h =4, (i.e., Sheen has spent four hours creating the profiles section), what would Armentrouts stocking quantity be? To identify the stocking quantity that maximizes Armentrouts profits, try varying Q while holding h =4 in the spreadsheet Hamptonshire Express Problem #3.

b. Why does the optimal stocking quantity differ from the optimal stocking quantity identified in Problem #2? Is the result here consistent with the newsvendor formula?

c. Now try varying h in spreadsheet Hamptonshire Express: Problem #3c (this spreadsheet has optimal newsboy calculation for differentiated channel, i.e. to maximize Ralphs profit) to see what happens to Sheens profit. How does her optimal effort in this question differ from the answer to question 2. Why?

d. How would changing the transfer price from the current value of $ 0.80 per newspaper impact Sheens effort level and Armentrouts stocking decision? Try changing the transfer price in the spreadsheet Hamptonshire Express: Problem #3d. (this spreadsheet has formulas for h and Q embedded.)

e. What conclusions can you draw about stocking and effort levels in a differentiated channel vis--vis an integrated firm that manufactures and retails its product.