Derivation of Pricing Recommendations

In this appendix, we derive the pricing recommendations found in Chapter Five. Through five cases, we illustrate the effects of various pricing schemes on the behavior of commands and wings and the cost of that behavior to the Air Force. These cases were chosen to capture many of the characteristics of repair activities within the Air Force depot maintenance system. In the first case, the DLR has only one type of repair that can be performed at either the local level or at the depot. In the second, the DLR may need an easy or a difficult repair. The easy repair can be done at the local level; however, the difficult repair can be done only at the depot level. In the third case, the DLR is an avionics box that can be screened at the local level. The box contains only one electronic card, so cannibalization is not possible. In the fourth case, the avionics box contains two cards; therefore, wings can alter the condition of the returned carcasses through cannibalization. In the fifth case, the wing can affect the probability that a mechanical item is condemned. Effort to reduce the condemnation rate is costly to the wing. Table B.1 summarizes the main attributes of these cases.