The thesis presents two essays in operations management – on customer valuation uncertainties and counterfeiting issues.

It is common for a firm to offer consumers opportunities to buy well ahead of consumption. However, by buying in advance, consumers must bear the risks of a low ex post valuation and a price markdown, which may result from both environment-dependent (public) and consumer-dependent (private) valuation uncertainties. Such risks may lower their incentive to purchase the product/service in advance, which is against the firm’s interest. In the first essay, we examine and evaluate the effectiveness of a cancellation refund policy and a price match policy in reducing consumers’ two types of risks and increasing the firm’s profitability. We find that cancellation refund always imp...[ Read more ]

The thesis presents two essays in operations management – on customer valuation uncertainties and counterfeiting issues.

It is common for a firm to offer consumers opportunities to buy well ahead of consumption. However, by buying in advance, consumers must bear the risks of a low ex post valuation and a price markdown, which may result from both environment-dependent (public) and consumer-dependent (private) valuation uncertainties. Such risks may lower their incentive to purchase the product/service in advance, which is against the firm’s interest. In the first essay, we examine and evaluate the effectiveness of a cancellation refund policy and a price match policy in reducing consumers’ two types of risks and increasing the firm’s profitability. We find that cancellation refund always improves the firm’s profitability, by reducing consumers’ risk of a low ex post valuation. The benefit decreases with the chance for a favorable public state, increases with the firm’s marginal cost and decreases with customers’ valuation upper bound. In contrast, price match, which attempts to mitigate consumers’ risk of the price markdown, does not always benefit the firm, depending on marketing conditions. Interestingly, price match can strictly increase the firm’s profit even if consumers do not exercise the price-match option in the spot market. Even though price match is more restrictive than cancellation refund, regarding situations where it benefits the firm, it can be more profitable to the seller. Particularly, we reveal that the firm gains more from adopting price match than adopting cancellation refund when the chance of a favorable public state is intermediate or the number of arrivals in the advance period is sufficiently larger than that in the spot period, or customers’ valuation upper bound is neither too high nor too low. We further find that, when customers’ mixed strategies are considered or the seller’s rationing strategy is allowed, results about comparison between cancellation refund and price match are unchanged. In a hybrid model, where cancellation refund and price match are offered together, we show that the two policies are complementary to each other. We also establish conditions under which price match outperforms cancellation refund when the firm in short of supply.

In the second essay, we investigate how a global supply chain is influenced by counterfeits and how the supply chain should effectively take anti-counterfeit actions. Specifically, we consider a supply chain consisting of a manufacturer and a local retailer, and examine who should counteract counterfeits, the manufacturer or the local retailer. We find that, in equilibrium, the manufacturer prefers to induce the retailer to combat counterfeits rather than to combat himself. This is because the combat cost is effectively shared by the two firms in the former case, while it is solely borne by the manufacturer in the latter. Contrary to conventional wisdom, counterfeits can increase the supply chain’s profit even in the absence of network externality effects. The crux is that the manufacturer lowers the wholesale price to incentivize the retailer to combat counterfeits and, consequently, the presence of counterfeits serves as a coordination device to reduce double marginalization and to benefit the supply chain. Moreover, the supply chain is more likely to benefit from counterfeits when combat cost increases, since a higher combat cost triggers a further reduction in wholesale price and enhances supply chain efficiency.