Date of Award

May 2023

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Department

Management Science

First Advisor

Xiang Fang

Committee Members

Layth Alwan, Kaan Kuzu, Zuhui Xiao

Keywords

Decision model, Horizontal competition, Operations management, Pricing strategy, Risk-sharing contract, Vertical coordination

Abstract

Horizontal competition and cooperation among enterprises and vertical interaction and collaboration among supply chain members are both popular research topics in operations management. Many studies have been conducted to explore horizontal and vertical competition and cooperation in depth, and many collaborative mechanisms and incentives have been developed. We study the horizontal game between firms and the vertical game between supply chain members using a game-theoretic approach in order to contribute to the study of decision-making.

In the first essay, horizontal competition is discussed. We explore the impact of the long- and short-term effects of advertising and product substitutability on firms' performance in a duopoly market. A two-period game is developed to study the strategic interactions between two firms producing substitute products under the same market conditions. At the beginning of period one, both firms set their retail prices and advertising effort levels simultaneously. At the beginning of period two, both firms only need to determine their retail prices at the same time. Firms can either be myopic or far-sighted. Myopic firms aim to maximize their short-term profits in each period separately. In contrast, far-sighted firms tend to maximize long-term profits in the long run. We derive a number of interesting managerial insights from the equilibrium solutions of the game under various conditions. Our findings show that (1) despite a positive short-term advertising effect, profits might fall if both firms have myopic strategies and the long-term advertising effect is negative; (2) even if the long-term negative advertising effect is weakened, both firms may suffer if one firm is myopic and the other is forward-looking; (3) it is also possible for the Farsighted-Farsighted equilibrium strategy to be accompanied by the prisoners’ dilemma. Furthermore, we demonstrate that the far-sighted strategy does not always outperform the myopic strategy. The myopic strategy is better than the forward-looking strategy, especially when the long-term advertising effect is negative and the positive short-term advertising effect and product substitutability are both significant.

The second essay explores vertical coordination and cooperation within a supply chain. In most industries, production environments are unpredictable and prone to breakdowns, delays, and repairs. These uncertainties affect the performance and relationships of supply chain members. In general, retailers encounter random demand, while manufacturers face uncertain production. Neither suppliers nor retailers want to take on risks alone. In this study, we consider two sources of production uncertainty. One can be predicted and detected as a random yield, and the other is completely uncontrollable as a variable capacity. Risk-sharing research should take both sources into account. We will lose some chances to adjust production plans, risk-sharing strategies, and partnerships if we treat both types of production uncertainty as random and uncontrollable. We should have already recovered some of our losses if we deal with these two sources of uncertainty separately. Taking a two-level supply chain into account and examining its performance and relationship with random yield, stochastic demand, and variable capacity is the focus of our research. As a means of mitigating the negative effects of variable capacity and random yield, we propose two underproduction risk-sharing contracts. Based on our analysis of centralized and decentralized supply chains, we find that random yield influences both the manufacturer's production decision and the retailer's ordering decision, whereas variable capacity only impacts the retailer's ordering decision. This result appears counterintuitive. A possible explanation is that random yield is caused by the imperfect design of the manufacturing process, which is predictable, measurable, and improvable. As a result, manufacturers take this type of uncertainty into account when making production decisions. It is impossible for manufacturers to measure the impact of variable capacity on planned production volumes since variable capacity is completely unpredictable and uncontrollable. In making decisions, manufacturers consider only what they can foresee, adapt, and control, and do not consider unmeasurable factors. However, for the retailer, he does not have complete information about either variable capacity or random yield, so both of these uncertainties impact his decision.

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