Essays On Joint Optimization Of Pricing And Capacity Decisions With Customer Behavior Modelling.

My dissertation is about joint optimization of firms' operations and marketing decisions with explicit modelling of customer behavior. It includes three essays:The first essay, ``Advance Selling -- The Effect of Capacity andConsumer Valuation Interdependence,'' considers a seller who canoffer a product twice, in advance and in spot markets. Customersstrategically choose when to purchase the product. Customers'valuations may be inter-dependent and the seller decides onwhether, when, and how to sell in advance. I show that customervaluation interdependence dramatically influences firms' strategy.For example, when customers' preferences are diverse, firmstypically quote discounted price, but may limit the capacityavailable in advance. In contrast, when customers' preferences arehighly correlated, firms with limited capacity can charge premiumprice in advance.The second essay, ``Rationing Capacity in Advance to SignalQuality,'' extends the analysis of advance selling to incorporateasymmetric information regarding product quality: firms usuallyhave better information about products' quality in advance thancustomers do. I characterize firms' strategy in equilibrium andfind that the asymmetry in information always hurts high-qualityfirms. These firms need to sacrifice some of their potentialprofit, by lowering price and/or limiting capacity in advance, tosignal to customers their high quality.The third essay, ``Demand Shaping and Product Overselling toBetter Match Supply and Demand for Assemble-to-Order Firms,''focuses on jointly producing and marketing multiple products forassemble-to-order firms, where assembly of final products occursonly after demand arrives and takes negligible time. The keyquestion is how to match final product demand with limited on-handcomponent inventory. By incorporating customers' price-baseddemand substitution into firms' decisions, I propose two controlstrategies, demand shaping and product overselling. I characterizethe optimal pricing and order-acceptance policies, and evaluatethe benefits of these two strategies both individually andjointly.