Firm's Optimal Resource Portfolio under Consumer Choice, and Supply and Demand Risks

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dc.contributor.authorChen, Weipingen
dc.contributor.committeechairBish, Ebru K.en
dc.contributor.committeememberTaaffe, Michael R.en
dc.contributor.committeememberSarin, Subhash C.en
dc.contributor.committeememberChan, Lap Mui Annen
dc.contributor.departmentIndustrial and Systems Engineeringen
dc.date.accessioned2014-03-14T20:14:42Zen
dc.date.adate2007-09-06en
dc.date.available2014-03-14T20:14:42Zen
dc.date.issued2007-07-20en
dc.date.rdate2007-09-06en
dc.date.sdate2007-08-03en
dc.description.abstractWe study the optimal resource portfolio for a price-setter firm under a consumer choice model with supply and demand risks. The firm sells two products that are vertically differentiated, and has the option to invest in both dedicated and flexible resources. Our objective is to understand the effectiveness of the two hedging mechanisms, resource flexibility and demand management through production differentiation, under demand and supply risks. We show that the presence of consumer-driven substitution does not always reduce the need for the firm to offer differentiated products. In particular, when the firm faces demand risk and differential production costs, it might invest in the flexible resource and offer differentiated products for a wider range of parameters. Interestingly, more uncertainty (in the form of additional supply risk) does not always make the firm more eager to adopt a hedging mechanism. This depends on the relationship between resource risks, product attributes, and resource investment costs. On the other hand, when the firm invests in the flexible resource, this never completely replaces the dedicated resources, and always results in a "diverse" resource portfolio. While this happens in the supply risk setting mainly due to resource diversification advantage, it also happens in the demand risk setting due to the vertical differentiation between the products. Finally, in the absence of differential production costs, demand management by itself (without resource flexibility) becomes powerful enough to hedge against the demand risk, but not the supply risk, due to the additional resource diversification benefit of the flexible resource in the latter setting.en
dc.description.degreePh. D.en
dc.identifier.otheretd-08032007-211352en
dc.identifier.sourceurlhttp://scholar.lib.vt.edu/theses/available/etd-08032007-211352/en
dc.identifier.urihttp://hdl.handle.net/10919/28505en
dc.publisherVirginia Techen
dc.relation.haspartETD_Weiping_Chen_v4.pdfen
dc.rightsIn Copyrighten
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/en
dc.subjectSupply and Demand Risken
dc.subjectResponsive Pricingen
dc.subjectConsumer Choiceen
dc.subjectVertical Differentiationen
dc.subjectResource Flexibilityen
dc.subjectProduct Differentiationen
dc.titleFirm's Optimal Resource Portfolio under Consumer Choice, and Supply and Demand Risksen
dc.typeDissertationen
thesis.degree.disciplineIndustrial and Systems Engineeringen
thesis.degree.grantorVirginia Polytechnic Institute and State Universityen
thesis.degree.leveldoctoralen
thesis.degree.namePh. D.en

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