Business Model Innovation, Social Interactions, and Behavioral Decision Making

University of Minnesota Ph.D. dissertation. August 2019. Major: Industrial and Systems Engineering. Advisors: Guangwen Kong, Saif Benjaafar. 1 computer file (PDF); xiii, 181 pages.This thesis consists of three parts. All chapters are centered around the behavioral decision making and business model innovation. In the first essay, we study a supply chain with a supplier selling products to a retailer who is boundedly rational. Under this setting, we study the impacts of the retailer's bounded rationality on the supplier's choice of contract and the supply chain efficiency. We develop a behavioral model that incorporates the human retailers bounded rationality in a supply chain setting. We then conduct a series of laboratory experiments to test whether the model's predictions are still salient even when the supplier is not necessarily rational. In contrast to a supply chain with a fully rational retailer, where a wholesale price contract usually cannot perform better than more complicated nonlinear contracts, we find that when the retailer is boundedly rational a wholesale price contract can dominate commonly used nonlinear contracts such as buy-back and revenue sharing contracts. We characterize the conditions under which a wholesale price contract outperforms more sophisticated non-linear price contracts for the supplier. In both theoretical model and the experiments, we find that a wholesale price contract is more likely to be implemented by the supplier when the supply chain profit margin is low, the retailer is less rational, the demand variance is high, and the retailer's reservation value is high. The results can explain the prevalence of wholesale price contract in business practice when the rationality of retailers cannot always be guaranteed. We also find that the retailer's bounded rationality plays a more important role in determining supply profit than the supplier's bounded rationality. In the second essay, we consider a setting which involves a service provider who sells access to a service or a product to a unit mass of heterogenous consumers. Such s business model is gaining popularity in recent years. With this growth comes opportunities for peer-to-peer trading marketplaces to emerge. However, there is a debate on whether or not peer-to-peer trading of excess capacity is beneficial to service providers and consumers. The second essay in this thesis aims to shed light on this debate and identifies conditions under which the existence of such marketplaces can be a win-win situation for all parties. We develop a game-theoretic model in which consumers participate in a simultaneous coordination game. Consumers are strategic and take into account the opportunity of purchasing or selling extra capacity on the trading market. Our model captures the heterogeneity of consumers' demand and the service provider's ability to modify service plans in view of this trading among consumers. We compare equilibrium outcomes with and without trading and show that outcomes with regard to service provider profit, consumer surplus, and social welfare are crucially dependent on service cost and trading price. A service provider would benefit from trading as long as the trading price is not too low (a low trading price encourages more consumers to opt for the low plan) and the service cost is not too high (a high service cost makes increased consumption due to trading too costly). A trading price that is too low can decrease consumer surplus and social welfare. Hence, a social planner would be interested in inducing a moderate or high trading price. In settings where the service provider can modify prices, consumers are no longer guaranteed to benefit from trading. In this case, trading can hurt consumers if the trading price is either sufficiently high (resulting in consumers paying a higher price for the higher plan) or sufficiently low (resulting in less consumption because more consumers opt for the low plan). Our results provide guidance to service providers, consumers, and policy makers as to when peer-to-peer trading may or may not be beneficial. The results highlight the important interplay between trading price and cost of service in determining various outcomes. For policymakers, the results can be useful in pointing out when such trading improves outcomes for consumers or social welfare and to potential policy levers that could be deployed to affect outcomes. Finally, in the last essay, we study the interaction between information asymmetry and the reciprocity in a financial crowdfunding setting. Most of the crowdfunding platforms encourage entrepreneurs to tap into their social network and bring investors from their social networks to their crowdfunding campaigns. This is done with the intention of creating the early momentum which appears to be the key to running a crowdfunding campaign. However, the incentives and information of those investors who are attracted to crowdfunding campaign from the entrepreneur's social network could be different from other investors who do not have a social tie with the entrepreneur. On the other hand, the regular investors do not have a social tie with the entrepreneur and their sole investment motivation is financial. In the last essay of this thesis, we develop a signaling game to better understand the interaction between the reciprocity and the information flow in a financial crowdfunding setting. Our main result indicates that the reciprocity may create a situation in which the informed investor (those from the entrepreneur's social network) cannot signal their type via distorting her investment

A static overbooking model in single leg flight revenue management

In this thesis, we present a static single leg airline revenue management model with overbooking. In this model it is assumed that the requests for different fare class tickets arrive according to independent nonhomogeneous Poisson processes. Each accepted request may cancel its reservation before the departure, and at the departure time no-shows may occur. In this setup, a static strategy is represented by a deterministic vector whose components give the closing times of the fare classes. Among those strategies we determine one with the highest expected revenue. As such this model can be seen as the static counter part of a dynamic continuous-time airline overbooking model. It can also be considered as an alternative to the well-known EMSR heuristics. In the thesis, we also study the performance of the optimal static strategy numerically and compare it with those of EMSR and dynamic strategies

An improved approach to exchange non-rectangular departments in CRAFT algorithm

In this Paper, an algorithm which improves CRAFT algorithm’s efficacy is developed. CRAFT is an algorithm widely used to solve facility layout problems. Our proposed method, named Plasma, can be used to improve CRAFT results. In this note, Plasma algorithm is tested in several sample problems. The comparison between Plasma and classic CRAFT and also Micro-CRAFT indicates that Plasma is successful in cost reduction in comparison with CRAFT and Micro-CRAFT

A New Approach for Solving Cell Formation Problem Considering Alternative Process Routings

In this paper, a mathematical model is proposed to solve cell formation problem considering alternative process routings in which more than one process route for each part can be selected. The model attempts to minimize intercellular movements and incorporates several real-life production factors and practical constraints. In order to increase the flexibility provided by the multiplicity of routings, the model distributes production volume of each part among alternative routes. Also, a constraint enforcing work load balancing among machines is included in the model. Due to the complexity and combinatorial nature of this model, an enhanced algorithm comprised of a genetic algorithm and a linear programming is proposed for solving the model. The proposed algorithm is tested by a range of test problems and compared with two algorithms from the literature .The computational results show that the proposed algorithm is effective and the proposed approach offers better solution

Generalizing the ordering cost and holding-backlog cost rate functions in EOQ-type inventory models

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A two-level GA to solve an integrated multi-item supplier selection model

In this paper, we investigate an integrated multi-item supplier selection model. The mathematical model which is a nonlinear binary programming is derived. To the best of our knowledge, it is the first study in the literature that considers both integration and multi-item nature of supplier selection process. In addition, proposed model allows the buyer to select multiple suppliers. In the proposed model, inventory costs for both supplier/suppliers and buyer, production costs for supplier/suppliers, and transportation costs are considered where supplier/suppliers use EPQ model and the buyer uses EOQ model to control the inventories. To solve the proposed SCM model, based on genetic algorithm, a novel Two-Level heuristic algorithm is developed. The results show that the proposed algorithm works properly in the term of both CPU time and the quality of solutions. Finally, using numerical examples, some useful managerial analysis are presented. These analysis provide valuable insights into the problem that can help the supply chain managers

A static model in single-leg flight airline revenue management

Static models on single leg airline revenue management generally consider booking limits or protection limits as the main decision variables to control reservation requests. In the current paper, we provide an alternative framework in which the decision variables are the closing times of fare classes. In a continuous time model with nonhomogeneous Poisson arrivals, cancellations, and no-shows, we study the problem of finding optimal closing times to maximize the expected net revenue from a given flight. We analyze the value function, point out some easy cases, and bring an easily implementable dynamic programming based solution method. We also illustrate this method on some numerical examples

Appreciation to referees, 2023

Saif Benjaafar, Editor-in-Chief of Service Science, thanks the referees who have generously provided expert counsel and guidance on a voluntary basis to the journal. Without them, the journal would not be able to function. The following list acknowledges those who acted as referees for papers considered during this past calendar year