Optimal Investment Strategies for Flexible Resources, Considering Pricing and Correlated Demands

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dc.contributor.authorWang, Qiongen
dc.contributor.committeechairBish, Ebru K.en
dc.contributor.committeememberKoelling, C. Patricken
dc.contributor.committeememberHuang, Philip Y.en
dc.contributor.departmentIndustrial and Systems Engineeringen
dc.date.accessioned2014-03-14T21:51:19Zen
dc.date.adate2002-12-20en
dc.date.available2014-03-14T21:51:19Zen
dc.date.issued2002-12-05en
dc.date.rdate2003-12-20en
dc.date.sdate2002-12-10en
dc.description.abstractWe study the resource investment decision faced by a firm that offers two demand-classes (i.e., products, services), while incorporating the firm's pricing decision into the investment decision. For this purpose, we consider a monopolistic situation and model the demand curve of each demand-class as a downward sloping linear function of its own price. The firm can invest in dedicated resources, which can only satisfy a specific demand-class, and/or in a more expensive, flexible resource, which can satisfy both demand-classes. We consider a two-stage stochastic decision model: In the first stage, the firm determines the dedicated and flexible resource capacities to invest in under demand uncertainty. In the second stage, demand curves are realized and the firm optimizes its revenue through pricing and resource allocation decisions, constrained by its capacity investment decision in the first stage. Our analysis provides the structure of the firm's optimal resource investment strategy as a function of price elasticities and investment costs, and shows how the value of resource flexibility depends on these parameters and demand correlations. Based on our analysis, we provide principles on the firm's optimal resource investment strategy under uncertainty. We show that it can be optimal for the firm to invest in the flexible resource when demand patterns are perfectly positively correlated, while it is not always optimal to invest in the flexible resource when demand patterns are perfectly negatively correlated.en
dc.description.degreeMaster of Scienceen
dc.identifier.otheretd-12102002-142145en
dc.identifier.sourceurlhttp://scholar.lib.vt.edu/theses/available/etd-12102002-142145/en
dc.identifier.urihttp://hdl.handle.net/10919/46183en
dc.publisherVirginia Techen
dc.relation.haspartQiong_thesis.pdfen
dc.rightsIn Copyrighten
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/en
dc.subjectpricingen
dc.subjectresource flexibilityen
dc.subjectstochasticen
dc.subjectResource investment decision under uncertaintyen
dc.titleOptimal Investment Strategies for Flexible Resources, Considering Pricing and Correlated Demandsen
dc.typeThesisen
thesis.degree.disciplineIndustrial and Systems Engineeringen
thesis.degree.grantorVirginia Polytechnic Institute and State Universityen
thesis.degree.levelmastersen
thesis.degree.nameMaster of Scienceen

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