Analysis and design of flexible systems to manage demand uncertainty and supply disruptions

Ph.DDOCTOR OF PHILOSOPH

Market structure and the value of overselling under stochastic demands

In the operations management literature, traditional revenue management focused on pricing and capacity allocation strategies in a two-period model with stochastic demand. Inspired by travel and lodging industries, we examine a two-period model in which each seller may also adopt the overselling strategy to customers whose valuations are differentiated by timing of arrivals. Widely seen as a popular hedge against consumers’ skipping reservations, we extend the stylized approaches of Biyalogorsky, Carmon, Fruchter, and Gerstner (1999) and Lim (2009) to understand the value of overselling under various market structures. We find that contrary to existing literature, the impact of period-two pricing competition from overselling spills over to period-one such that overselling may not always be a (weakly) dominant strategy once unlimited early demand ceases to hold in a duopoly regime. We provide some numerical studies on the existence of multiple equilibria at the capacity allocation level which actually lead to different selling strategies at the equilibrium despite identical market conditions and firm characteristics

On the effect of demand randomness on inventory, pricing and profit

We consider a stocking-factor-elasticity approach for pricing newsvendor facing multiplicative demand uncertainty with lost sales. For a class of iso-elastic demand curves, we prove that optimal order quantity decreases in demand uncertainty for zero salvage value. This contrasts with fixed-price newsvendor results which depend on the critical ratio. Numerical tests show that optimal order quantity increases in demand uncertainty for high salvage value, low marginal cost, and low price-elasticity. We also report results on optimal price, service level, and profit.Accepted versio

Optimal Discounting and Replenishment Policies for Perishable Products

We consider a retailer, selling a perishable product with short shelf-life and uncertain demand, facing these key decisions: (a) whether to discount old(er) items, (b) how much discount to offer, and (c) what should be the replenishment policy. In order to better understand the impact of consumer behavior and shelf-life on these decisions, we consider four models. In Model A, the product has a shelf life of two periods and the retailer decides whether or not to offer a discount. The amount of discount is exogenous and assumed to be large enough so that all the customers prefer the old product to the new one when a discount is offered. Based on several numerical examples, we find that a threshold discounting policy, in which a discount is offered if and only if the inventory of old product is below a threshold, is optimal. In Model B, the retailer also decides how much discount to offer. Model C extends Model B and considers a new pool of customers who are willing to purchase from the retailer when a discount is offered. In both Models B and C, the product has a shelf-life of two periods while Model D explores what happens with longer shelf-life. We analyze and compare these models to present different managerial insights.Accepted versio