Essays on Product Variety in Retail Operations

Abstract

Thanks to technological advances in the past few decades, firms find product variety a more viable and hopefully a more profitable strategy than before. In this two-essay dissertation, I employ analytical models to investigate the effects of emerging operations concerning product variety on firm profits and consumer surplus. In my first essay, I analyze a two-stage game to study product-design and price competition between two mass-customizing firms that serve consumers with varying tastes. By comparing equilibrium results in settings with and without mass customization, I establish that competition with customization may lead to lower profits and consumer surplus. In my second essay, I study sample boxes which potentially create value by helping consumers resolve their uncertainties regarding different product varieties more efficiently. I show that when a firm offers a sample box, consumers obtain equal or higher net expected surplus while the firm's expected profit may decrease. I also show that a firm can reverse the potential adverse profit impact of selling sample boxes by introducing an optimally specified future credit.

This dissertation includes previously unpublished co-authored material.