This dissertation focuses on three cases of the following two stage problem in the context of multi-product inventories of vertically differentiated products. In Stage 1 of the problem, the manager determines the optimal production quantities of different products when the demands are uncertain. In Stage 2 of the problem, the demands for different products are observed. Now, the manager meets the demand of each product using the inventory of the product or by carrying out a downward substitution from the inventories of higher performance products. The manager’s objective is to maximize the expected revenue from the decisions made at the two stages collectively. The first problem addressed in this dissertation focuses on the case when different products are produced simultaneously on the same set of machines due to random variations in the manufacturing process. These systems, referred to as co-production systems, are very common in the semi- conductor industry, the textile industry and the agriculture industry. For this problem, we provide an analytical solution to the two stage problem, and discuss managerial insights that are specific to co-production systems and are not extendible to multi-item inventories of products that can be ordered or manufactured independently. The second problem addressed in this dissertation focuses on the case when different products can be ordered or manufactured independently, and no constraints to meet minimum fill rate requirements or to restrict the total inventory below a certain level are present. We present an analytical solution to this problem. The third problem addressed in this dissertation focuses on the case when different products can be ordered or manufactured independently and fill rate constraints and total inventory constraints are present. When the demands are multivariate normal, we show that this two stage problem can be reduced to a non-linear program using some new results for the determination of partial expectations. We also extend these results to higher order moments of the multivariate distribution and discuss their applications in solving some common operations management problems. / text

The research is motivated by the significant increase in multiproduct mergers in the meat-protein processing sector, whereby the largest firms now process beef, pork, and chicken. This thesis conducts a theoretical merger analysis, accounting for both within- and across-submarket substitution of demand related goods. The model developed is suitable for analyzing markets in which there are identifiable consumer submarkets within a larger market. The results indicate two primary findings. The first finding is that Bertrand firms have a unilateral incentive to merge. Firms involved in a given merger increase profit, as well as those not included in the merger. Second, it is found that without sufficient realized scope economies by the merged firm, significant anticompetitive price increases are likely. However, as substitutability within and across submarkets tend towards each other in magnitude, the required cost reductions for welfare neutrality increase vastly. Additionally, guidelines for future empirical analysis are discussed.

Optimization of materials supply and inbound logistic operations has become increasingly important as firms have continued to pursue outsourcing options. Further, the proliferation of products and advances in information technology have greatly impacted retailers’ marketing strategies in the past decade. In this dissertation, we address how to optimally develop integrated sourcing and delivery planning, and how to optimally offer vertically differentiated products and bundles. In the first essay, we address a combined sourcing and delivery planning optimization problem, which is motivated by a practical problem facing materials and supply planners for construction projects in a leading corporation. We develop a decision support model and an effective solution approach for integrated sourcing and delivery planning for bulk materials. This approach, implemented and currently in use at the company to support material delivery planning for track maintenance projects, has yielded significant savings of millions of dollars annually. In the second essay, we study the problem of a retailer managing a category of vertically differentiated products. We consider two settings: the exogenous prices case and the endogenous prices case. In the former case, the selling prices are exogenously determined and the retailer’s only decision is to determine the set of products to offer. In the latter case, the retailer also determines the selling prices. We develop efficient methods to identify the optimal solutions for both cases and provide valuable insights and guidelines for practitioners. In the third essay, we study how to choose the optimal bundling strategy for a retailer offering vertically differentiated information goods. We characterize conditions under which pure bundling and mixed bundling strategies are optimal respectively. We provide efficient methods to identify which individual components to offer, whether or not to offer a bundle containing all the components and how to price the offered individual components and the bundle in order to maximize the retailer’s profit. / text

Master of Arts / Department of Economics / Yang-Ming Chang / This report examines merger incentives of cost asymmetric firms under product differentiation and their welfare implications. Considering a simple contract under which merger profit is distributed according to the proportions of differential marginal costs between duopolistic firms, we show in a stylized model that for almost all parameter ranges (in terms of market competition intensity and marginal cost differential), a low-cost firm may have no incentive to merge with a high-cost firm whereas the high-cost firm always finds merger to be profitable. Only when marginal cost differential is sufficiently low and the degree of product similarity is sufficiently high will both the low-cost firm and the high-cost firm share the common interest in merger. On the other hand, the merger equilibrium is not welfare-improving, regardless of whether the firms initially compete in quantities or prices. Viewed from the perspective of production efficiency, mergers with differentiated products thus create a fundamental conflict between the maximization of consumer and social welfare and the maximization of firm profits. We also examine the scenario that merger takes place when merger profit exceeds the sum of firm profits under duopoly, without considering how merger profit is distributed between the firms. We discuss the conditions under which mergers may or may not be welfare-improving.

A large part of the empirical work on differentiated products markets has focused on demand estimation and the pricing behavior of firms. These two themes are key inputs in important applications such as the merging of two firms or the introduction of new products. The validity of inferences, therefore, depends on accurate demand estimates and sound assumptions about the pricing behavior of firms. This dissertation makes a contribution to this literature in two ways. First, it adds to previous techniques of estimating demand for differentiated products. Second, it extends previous analyses of pricing behavior to models of price leadership that, while important, have received limited attention. The investigation focuses on the U.S. brewing industry, where price leadership appears to be an important type of firm behavior. The analysis is conducted in two stages. In the first stage, the recent Distance Metric (DM) method devised by Pinkse, Slade and Brett is used to estimate the demand for 64 brands of beer in 58 major metropolitan areas of the United States. This study adds to previous applications of the DM method (Pinkse and Slade; Slade 2004) by employing a demand specification that is more flexible and also by estimating advertising substitution coefficients for numerous beer brands. In the second stage, different pricing models are compared and ranked by exploiting the exogenous change in the federal excise tax of 1991. Demand estimates of the first stage are used to compute the implied marginal costs for the different models of pricing behavior prior to the tax increase. Then, the tax increase is added to the these pre-tax increase marginal costs, and equilibrium prices for all brands are simulated for each model of pricing behavior. These "predicted" prices are then compared to actual prices for model assessment. Results indicate that Bertrand-Nash predicts the pricing behavior of firms more closely than other models, although Stackelberg leadership yields results that are not substanitally different from the Bertrand-Nash model. Nevertheless, Bertrand-Nash tends to under-predict prices of more price-elastic brands and to over-predict prices of less price- elastic brands. An implication of this result is that Anheuser-Busch could exert more market power by increasing the price of its highly inelastic brands, especially Budweiser. Overall, actual price movements as a result of the tax increase tend to be more similar across brands than predicted by any of the models considered. While this pattern is not inconsistent with leadership behavior, leadership models considered in this dissertation do not conform with this pattern. / Ph. D.

Doctor of Philosophy / Department of Agricultural Economics / Tian Xia / This dissertation presents the development of a new approach to include the interaction of vertically differentiated products, a subject that has been largely ignored in previous studies, to analyze the market power of exporters and importers in the world markets of agricultural commodities. Three theoretical models, a residual demand elasticity (RDE) model, a residual supply elasticity (RSE) model, and a two-country partial equilibrium trade model, are developed, and the corresponding empirical models are specified for U.S.-Japan soybean trade. Genetically modified (GM) and non-genetically modified (non-GM) soybeans are vertically differentiated products in the sense that GM soybeans are largely defined as an inferior substitute to non-GM soybeans. I compare two versions of these models: a new approach in which the interaction between non-GM and GM soybeans is taken into account and the traditional approach in which the interaction is ignored. In each of the three models (the RDE model, the RSE model, and the partial equilibrium trade model), the traditional approach overestimates the market margin of U.S. non-GM soybean exporters and that of Japanese non-GM soybean importers. By considering the interaction between non-GM and GM soybeans, the new approach greatly reduces the estimates of the corresponding market margins of U.S. exporters and Japanese importers to improve the accuracy of such estimates. The statistical significance of the coefficient estimate of the interaction term, the U.S. GM soybean price or the Japanese GM soybean price, in all three models suggests that the new approach, which includes the interaction between non-GM and GM soybeans, is necessary and preferred. The partial equilibrium trade model includes both an RDE equation and an RSE equation in a system to address the possible contemporaneous cross-equation correlation. Thus, the estimation results of the partial equilibrium trade model are further improved, compared to those of the RDE model and the RSE model. Using the traditional approach to estimate the partial equilibrium trade model, I find that the U.S. non-GM soybean exporters’ market margin is 56.5% and the Japanese non-GM soybean importers’ market margin is 16.1%. However, the results obtained by using the new approach show that the market margins of U.S. exporters and Japanese importers are 33.2% and 6%, respectively. By taking into account the interaction between non-GM and GM soybeans, the new approach improves the accuracy of the estimates of market margins of soybean exporters and importers. U.S. non-GM soybean exporters do have a significant market margin in international markets, but it is not as large as the one suggested by the traditional approach. Although Japanese non-GM soybean importers enjoy some market margin, it is relatively small. The theoretical and empirical models and results in this dissertation provide new and more accurate estimates of residual demand and supply elasticities and market power and improve the understanding on world soybean markets. These results can be useful for industry participants in international soybean markets, academic researchers, and policy makers.

Submitted by FLAVIO MORAES (flafmoraes@yahoo.com.br) on 2010-08-19T14:21:41Z No. of bitstreams: 1 Dissertacao_Flavio_Moraes.pdf: 462004 bytes, checksum: 123425d1cbdd74b47091293eaf1f296d (MD5) / Approved for entry into archive by Andrea Virginio Machado(andrea.machado@fgv.br) on 2010-08-19T16:53:50Z (GMT) No. of bitstreams: 1 Dissertacao_Flavio_Moraes.pdf: 462004 bytes, checksum: 123425d1cbdd74b47091293eaf1f296d (MD5) / Made available in DSpace on 2010-08-20T14:46:06Z (GMT). No. of bitstreams: 1 Dissertacao_Flavio_Moraes.pdf: 462004 bytes, checksum: 123425d1cbdd74b47091293eaf1f296d (MD5) Previous issue date: 2008-07-18 / The purpose of this paper is to discuss in details the development of estimation methods of demand and supply parameters in di§erentiated products markets. The techniques presented consider explicitly the endogeneity of prices and can be applied to di§erent types of industries. The market demands system is derived from discrete choice models describing the behaviour of the consumer. This system is then combined with hypothesis about the cost functions and the behaviour of price determination by the Örms to generate equilibrium prices and quantities. The parameters to be estimated are those that determine the marginal costs of the Örms and the distribution of the consumersí tastes. This distribution determine elasticities and these, combined with the marginal cost and a hypothesis of Nash equilibrium, determine equilibrium prices. These elasticities and cost parameters play a central role in analysis of descriptive / Este trabalho tem por objetivo discutir detalhadamente o desenvolvimento de métodos de estimação de parâmetros de demanda e oferta em mercados de produtos diferenciados. As técnicas apresentadas consideram explicitamente a endogeneidade dos preços e podem ser aplicadas a diferentes tipos de indústrias. O sistema de demandas de mercado é derivado a partir de modelos de escolha discreta descrevendo o comportamento do consumidor. Esse sistema é então combinado com hipóteses sobre as funções custo e sobre o comportamento de determinação dos preços por parte das firmas para gerar preços e quantidades de equilíbrio. Os parâmetros a ser estimados são os que determinam os custos marginais das firmas e a distribuição dos gostos dos consumidores. Essa distribuição determina elasticidades e estas, combinadas com o custo marginal e com uma hipótese de equilíbrio de Nash na determinação de preços, determinam preços de equilíbrio. Essas elasticidades e parâmetros de custo desempenham um papel central em análises de questões descritivas e de mudanças no ambiente do mercado sob análise.

Submitted by Rafael de Braga Castilho (rcastilho@fgvmail.br) on 2014-01-06T19:10:15Z No. of bitstreams: 1 MestRafaelCastilho.pdf: 636676 bytes, checksum: f815c7fac86fe9684f4f79cd86ec9f26 (MD5) / Approved for entry into archive by Janete de Oliveira Feitosa (janete.feitosa@fgv.br) on 2014-01-15T17:51:37Z (GMT) No. of bitstreams: 1 MestRafaelCastilho.pdf: 636676 bytes, checksum: f815c7fac86fe9684f4f79cd86ec9f26 (MD5) / Approved for entry into archive by Marcia Bacha (marcia.bacha@fgv.br) on 2014-01-24T12:33:06Z (GMT) No. of bitstreams: 1 MestRafaelCastilho.pdf: 636676 bytes, checksum: f815c7fac86fe9684f4f79cd86ec9f26 (MD5) / Made available in DSpace on 2014-01-24T12:33:23Z (GMT). No. of bitstreams: 1 MestRafaelCastilho.pdf: 636676 bytes, checksum: f815c7fac86fe9684f4f79cd86ec9f26 (MD5) Previous issue date: 2013-10-29 / Estimation of demand and supply in differentiated products markets is a central issue in Empirical Industrial Organization and has been used to study the effects of taxes, merges, introduction of new goods, market power, among others. Logit and Random Coefficients Logit are examples of demand models used to study these effects. For the supply side it is generally supposed a Nash equilibrium in prices. This work presents a detailed discussion of these models of demand and supply as well as the procedure for estimation. Lastly, is made an application to the Brazilian fixed income fund market. / Estimação de demanda e oferta em mercados com produtos diferenciados é uma questão central em organização industrial empírica e tem sido usada para estudar os efeitos de taxas, fusões, introdução de novos bens, poder de mercado, dentre outros. Logit e Logit com coeficientes aleatórios são exemplos de modelos de demanda utilizados para estudar estes efeitos. Para a oferta geralmente é suposto equilíbrio de Nash em preços. Este trabalho apresenta uma discussão detalhada destes modelos de demanda e oferta, assim como o procedimento para estimação. Por fim é feita uma aplicação para o mercado brasileiro de fundos de renda fixa.