Product Differentiation And Capacity Cost Interaction In Time And Price Sensitive Markets
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Product Differentiation And Capacity Cost Interaction In Time And Price Sensitive Markets
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Author : Tamer Boyaci
language : en
Publisher:
Release Date : 2007
Product Differentiation And Capacity Cost Interaction In Time And Price Sensitive Markets written by Tamer Boyaci and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
In this paper, we study a profit-maximizing firm selling two substitutable products in a price and time sensitive market. The products differ only in their prices and delivery times. We assume that there are dedicated capacities for each product and that there is a standard industry delivery time for the regular (slower) product. The objective of the firm is to determine the delivery time of the express (faster) product and appropriately price the two products, taking into consideration the impact of delivery time reduction on capacity requirements and costs. We develop a model that integrates pricing and delivery time decisions with capacity requirements and costs, and study scenarios where the firm is constrained in capacity for none, one, or both product(s). We showhowpr oduct differentiation decisions are influenced by capacity costs, and howthe firm should adapt its differentiation strategy in response to a change in its operating dynamics. We first identify a market characteristic that governs the optimal pricing structure. We then showthat the degree of product differentiation depends on both the absolute, as well as the relative values of the capacity costs. Provided that the capacity cost differential remains the same, higher capacity costs induce less time differentiation and less price differentiation. An increase in capacity cost differential increases price differentiation, but decreases time differentiation. The optimal prices depend, in addition to the above, on the market characteristic. We find that prices can actually decrease when the firm incurs capacity-related costs. We also explore the impact of substitutability on product differentiation, and illustrate our results in a numerical study.
Product Differentiation And Operations Strategy For Price And Time Sensitive Markets
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Author : Sachin Jayaswal
language : en
Publisher:
Release Date : 2009
Product Differentiation And Operations Strategy For Price And Time Sensitive Markets written by Sachin Jayaswal and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
In this dissertation, we study the interplay between a firm's operations strategy, with regard to its capacity management, and its marketing decision of product differentiation. For this, we study a market comprising heterogeneous customers who differ in their preferences for time and price. Time sensitive customers are willing to pay a price premium for a shorter delivery time, while price sensitive customers are willing to accept a longer delivery time in return for a lower price. Firms exploit this heterogeneity in customers' preferences, and offer a menu of products/services that differ only in their guaranteed delivery times and prices. From demand perspective, when customers are allowed to self-select according to their preferences, different products act as substitutes, affecting each other's demand. Customized product for each segment, on the other hand, results in independent demand for each product. On the supply side, a firm may either share the same processing capacity to serve the two market segments, or may dicate capacity for each segment. Our objective is to understand the interaction between product substitution and the firm's operations strategy (dedicated versus shared capacity), and how they shape the optimal product differentiation strategy. To address the above issue, we first study this problem for a single monopolist firm, which offers two versions of the same basic product: (i) regular product at a lower price but with a longer delivery time, and (ii) express product at a higher price but with a shorter delivery time. Demand for each product arrives according to a Poisson process with a rate that depends both on its price and delivery time. In addition, if the products are substitutable, each product's demand is also influenced by the price and delivery time of the other product. Demands within each category are served on a first-come-first-serve basis. However, customers for express product are always given priority over the other category when they are served using shared resources. There is a standard delivery time for the regular product, and the firm's objective is to appropriately price the two products and select the express delivery time so as to maximize its profit rate. The firm simultaneously needs to decide its installed processing capacity so as to meet its promised delivery times with a high degree of reliability. While the problem in a dedicated capacity setting is solved analytically, the same becomes very challenging in a shared capacity setting, especially in the absence of an analytical characterization of the delivery time distribution of regular customers in a priority queue. We develop a solution algorithm, using matrix geometric method in a cutting plane framework, to solve the problem numerically in a shared capacity setting. Our study shows that in a highly capacitated system, if the firm decides to move from a dedicated to a shared capacity setting, it will need to offer more differentiated products, whether the products are substitutable or not. In contrast, when customers are allowed to self-select, such that independent products become substitutable, a more homogeneous pricing scheme results. However, the effect of substitution on optimal delivery time differentiation depends on the firm's capacity strategy and cost, as well as market characteristics. The optimal response to any change in capacity cost also depends on the firm's operations strategy. In a dedicated capacity scenario, the optimal response to an increase in capacity cost is always to offer more homogeneous prices and delivery times. In a shared capacity setting, it is again optimal to quote more homogeneous delivery times, but increase or decrease the price differentiation depending on whether the status-quo capacity cost is high or low, respectively. We demonstrate that the above results are corroborated by real-life practices, and provide a number of managerial implications in terms of dealing with issues like volatile fuel prices. We further extend our study to a competitive setting with two firms, each of which may either share its processing capacities for the two products, or may dedicate capacity for each product. The demand faced by each firm for a given product now also depends on the price and delivery time quoted for the same product by the other firm. We observe that the qualitative results of a monopolistic setting also extend to a competitive setting. Specifically, in a highly capacitated system, the equilibrium prices and delivery times are such that they result in more differentiated products when both the firms use shared capacities as compared to the scenario when both the firms use dedicated capacities. When the competing firms are asymmetric, they exploit their distinctive characteristics to differentiate their products. Further, the effects of these asymmetries also depend on the capacity strategy used by the competing firms. Our numerical results suggest that the firm with expensive capacity always offers more homogeneous delivery times. However, its decision on how to differentiate its prices depends on the capacity setting of the two firms as well as the actual level of their capacity costs. On the other hand, the firm with a larger market base always offers more differentiated prices as well as delivery times, irrespective of the capacity setting of the competing firms.
The Economic Theory Of Product Differentiation
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Author : John Beath
language : en
Publisher: Cambridge University Press
Release Date : 1991-02-22
The Economic Theory Of Product Differentiation written by John Beath and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 1991-02-22 with Business & Economics categories.
There are few industries in modern market economies that do not manufacture differentiated products. This book provides a systematic explanation and analysis of the widespread prevalence of this important category of products. The authors concentrate on models in which product selection is endogenous. In the first four chapters they consider models that try to predict the level of product differentiation that would emerge in situations of market equilibrium. These market equilibria with differentiated products are characterised and then compared with social welfare optima. Particular attention is paid to the distinction between horizontal and vertical differentiation as well as to the related issues of product quality and durability. This book brings together the most important theoretical contributions to these topics in a succinct and coherent manner. One of its major strengths is the way in which it carefully sets out the basic intuition behind the formal results. It will be useful to advanced undergraduate and graduate students taking courses in industrial economics and microeconomic theory.
Optimization In Science And Engineering
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Author : Themistocles M. Rassias
language : en
Publisher: Springer
Release Date : 2014-05-29
Optimization In Science And Engineering written by Themistocles M. Rassias and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-05-29 with Mathematics categories.
Optimization in Science and Engineering is dedicated in honor of the 60th birthday of Distinguished Professor Panos M. Pardalos. Pardalos’s past and ongoing work has made a significant impact on several theoretical and applied areas in modern optimization. As tribute to the diversity of Dr. Pardalos’s work in Optimization, this book comprises a collection of contributions from experts in various fields of this rich and diverse area of science. Topics highlight recent developments and include: Deterministic global optimization Variational inequalities and equilibrium problems Approximation and complexity in numerical optimization Non-smooth optimization Statistical models and data mining Applications of optimization in medicine, energy systems, and complex network analysis This volume will be of great interest to graduate students, researchers, and practitioners, in the fields of optimization and engineering.
Manufacturing Service Operations Management
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Author :
language : en
Publisher:
Release Date : 2003
Manufacturing Service Operations Management written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with Electronic journals categories.
Innovative Computing And Information
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Author : Minli Dai
language : en
Publisher: Springer
Release Date : 2011-08-30
Innovative Computing And Information written by Minli Dai and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-08-30 with Computers categories.
This six-volume-set (CCIS 231, 232, 233, 234, 235, 236) constitutes the refereed proceedings of the International Conference on Computing, Information and Control, ICCIC 2011, held in Wuhan, China, in September 2011. The papers are organized in two volumes on Innovative Computing and Information (CCIS 231 and 232), two volumes on Computing and Intelligent Systems (CCIS 233 and 234), and in two volumes on Information and Management Engineering (CCIS 235 and 236).
Methods And Applications For Modeling And Simulation Of Complex Systems
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Author : Byeong-Yun Chang
language : en
Publisher: Springer Nature
Release Date : 2022-10-05
Methods And Applications For Modeling And Simulation Of Complex Systems written by Byeong-Yun Chang and has been published by Springer Nature this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022-10-05 with Computers categories.
This volume constitutes the proceedings of the 20th Asian Simulation Conference, AsiaSim 2021, held as a virtual event in November 2021. The 9 full papers presented in this volume were carefully reviewed and selected from 23 submissions. The papers are organized in topical sections on simulation and visualization; modeling and simulation of systems.
Proceedings Of The Thirteenth International Conference On Management Science And Engineering Management
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Author : Jiuping Xu
language : en
Publisher: Springer
Release Date : 2019-06-19
Proceedings Of The Thirteenth International Conference On Management Science And Engineering Management written by Jiuping Xu and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-06-19 with Technology & Engineering categories.
This book gathers the proceedings of the 13th International Conference on Management Science and Engineering Management (ICMSEM 2019), which was held at Brock University, Ontario, Canada on August 5–8, 2019. Exploring the latest ideas and pioneering research achievements in management science and engineering management, the respective contributions highlight both theoretical and practical studies on management science and computing methodologies, and present advanced management concepts and computing technologies for decision-making problems involving large, uncertain and unstructured data. Accordingly, the proceedings offer researchers and practitioners in related fields an essential update, as well as a source of new research directions.
Product Differentiation And Market Segmentation Of Information Goods
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Author : Barrie R. Nault
language : en
Publisher:
Release Date : 2006
Product Differentiation And Market Segmentation Of Information Goods written by Barrie R. Nault and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.
Large sunk costs of development, negligible costs of reproduction and distribution and substantial economies of scale make information goods distinct from physical goods. Consequently,how to take advantage of the specific characteristics of information goods is an important managerial problem. Price discrimination and product differentiation are common ways this issue has been addressed. In previous literature, vertical differentiation and related pricing strategies have been researched in contexts such as nonlinear utility functions,network externalities, competition and anti-piracy. Little attention has been paid to the relationship between market segmentation and product differentiation. In this paper, we emphasize the interaction of market segmentation and product differentiation as we believe that any product differentiation must be based on existing market segmentation. In our model, we treat vertical differentiation as a special case of horizontal differentiation, and we model the interaction between different market segments showing the differences in product differentiation strategies when moving from horizontal to vertical differentiation. We find that it is always sub-optimal to differentiate information goods if the market is not fully differentiated or if characteristics of the information goods are not specifically designed for certain market segments. We divide characteristics of information goods into four categories according to the ease of differentiation and design guidelines for firms to differentiate their goods based on these characteristics. We further provide guidance on whether to merge one or several versions when costs for versioning information goods are significant.
Rational Queueing
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Author : Refael Hassin
language : en
Publisher: CRC Press
Release Date : 2016-03-23
Rational Queueing written by Refael Hassin and has been published by CRC Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-03-23 with Business & Economics categories.
Understand the Strategic Behavior in Queueing SystemsRational Queueing provides one of the first unified accounts of the dynamic aspects involved in the strategic behavior in queues. It explores the performance of queueing systems where multiple agents, such as customers, servers, and central managers, all act but often in a noncooperative manner.T