Selected topics in interdisciplinary operations management : behavioral pricing, omnichannel and horizontal merger

Abstract

This thesis selects three topics from the interface of operations and marketing. It focuses on the interplay between a firm and its strategic consumers as well as its competitors. It consists of three studies. In the first study, we investigate the effects of valuation uncertainty and consumers' anticipated regrets on a retailer's pricing decision and strategy. We consider a firm selling two substitutable products in a selling season with two periods: A single product is sold in each period. The firm either commits both prices at the beginning of the selling season (price commitment), or dynamically sets the price at the beginning of each period (dynamic pricing). Besides, a consumer may experience purchase or wait regret. Regret is defined as the disutility of not having chosen the ex post best-forgone alternative. We focus on examining whether and how the retailer can use intertemporal prices and pricing strategies to mitigate consumers' strategic behavior. We find that a firm may need to set a lower price in the first period in order to mitigate strategic waiting. This is true even when the product sold in the first period is more attractive. Besides, the effects of purchase regret and wait regret on the optimal prices may be non-monotone under price commitment. In addition, price commitment always dominates dynamic pricing and the value of commitment depends on the valuation uncertainty and consumers' anticipated regrets. In the second study, we turn our attention from pricing management to channel management and study how far a retailer should go with omnichannel selling strategy. Specifically, we analyze whether the retailer should keep the traditional selling, step out to use the research online and purchase offline (ROPO) strategy, or go further to adopt the buy online and pick up in store (BOPS) strategy. We find that both the ROPO and BOPS strategies may or may not be optimal for the retailer. We derive the conditions under which the retailer should implement the ROPO or BOPS strategy. For example, we show that if the profit of online retailing is small, then the retailer should adopt the ROPO strategy. By contrast, if the hassle cost of using the BOPS function is low, and the profit of online retailing is big or each consumer brings a great cross-selling benefit, then the BOPS strategy is optimal for the retailer. Furthermore, since many firms adopt mergers and acquisitions (M&As) as an important strategy in competitive business environment, we look at a big picture and study competing firms' merging decision and strategy in a competitive market. We develop a game-theoretical model, in which multiple firms compete on price and quality and two of them decide whether and how to merge. The post-merger firm achieves cost saving and needs to further decide the degree of post-merger integration, i.e., centralized merger or decentralized merger. We focus on examining whether two competing firms should merge and which merging strategy (i.e., centralized or decentralized merger) is optimal for the post-merger firm when facing competition from the nonparticipant firm in the market. We find that the post-merger firm prefers decentralized merger when market competition is fierce enough; otherwise, it should choose centralized merger. Besides, if both centralized and decentralized mergers are possible, then the competing firms should always choose to merge. However, if centralized merger is not possible, then the participant firms may be worse off after merger when horizontal differentiation level is low.