Product line design under capacity and competition

Firms have long recognized the importance of quality based market segmentation and designed their product lines to make use of this phenomenon. However, product line decisions are traditionally made without regard to capacity limitations. It is usually ignored that a firm has limited resources for offering its products and needs to use these resources efficiently. This dissertation provides managerial insights by simultaneously studying the product line design problem and capacity limitations faced by the firms in a stylized two product setting. The optimal choice of product mix and pricing of these products when the products have different quality levels is a well-known problem. It has been studied extensively in both the marketing and economics literatures. However, the impact of capacity constraints has never been investigated in these literatures. On the other hand, the effects of product variety on operational decisions and how to mitigate these effects are fundamental questions in the operations literature. However, the effects of segmentation and cannibalization have not been understood well in the operations literature. This dissertation aims to fill these gaps in the literature. In the first essay, the problem is solved from a monopolist firm's point of view. This solution is compared to a socially efficient solution subject to capacity limitations. In the second essay, we introduce competition into the model. We characterize the solutions for both duopoly and oligopoly market structures. We investigate how competitor entry changes the optimal product mix, how industry supply and prices of products are affected when the number of competing firms changes, and how these results under capacity limitations are different from the existing literature. In the third essay, we study firms that have focused product line strategies. We derive the profitability limits of the focused strategy firms under both monopoly and duopoly settings where the competition may be asymmetric. In the fourth essay, we extend the monopoly model into a multiperiod setting and we study the effects of customer valuation uncertainty. We discuss how the results from the deterministic case compare to the stochastic case and how increasing uncertainty affects the firm's product line decisions

Does Competitive Behavior not Mean Lower Prices? Impact of Growing Demand and Limited Seat Availability in Asia-Pacific Commercial Aviation Industry

This article explores the airline industry where passengers are heterogeneous in their willingness to pay and markets are capacity constrained. Contrary to conventional wisdom, theauthor find that more intense competition can result in higher prices and a lower aggregate supply. It is shown that the price of the seat with a lower profit margin-per-unit capacity may be higher when there is a smaller number of companies in competition. It is also shown that total supply of business class seats may be reduced when there are more firms in competition. These phenomena occur because of how competition affects airlines’ seat capacity allocation among products. Interactions between competition and seat capacity constraints are nontrivial including nonmonotonic relationships

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