Date of Award

Summer 8-15-2019

Author's School

Graduate School of Arts and Sciences

Author's Department

Economics

Degree Name

Doctor of Philosophy (PhD)

Degree Type

Dissertation

Abstract

In this dissertation, I apply game-theoretical methods in the context of marketing research and investigate the effects of stylized facts in behavioral economics. Chapter 1 studies the effects of managerial optimism on firms’ performance. Research has shown that many managers and entrepreneurs tend to be optimistic and are inclined to believe that negative shocks happen to them less frequently than to others. However, there is also evidence suggesting that such optimism is often inaccurate in reality and managerial optimism can lead to the failure of a company. We develop a game-theoretic model to investigate the impact of managerial optimism on firms’ performance in a competitive market. Our analysis shows that a manager’s optimism about demand can increase the firm’s profit. Moreover, only one firm having managerial optimism can be win-win for both firms in a duopoly, because it can increase the level of product quality differentiation between the firms, alleviating price competition. However, if both firms have optimistic managers, the benefit of increased differentiation disappears, and firms are weakly worse off, compared with the case of both firms having realistic managers. Our research suggests that a firm should hire a realistic manager when managerial optimism is already pervasive in a competitive market. Chapter 2 studies the effects of different supply chains on firms’ profitability. In many supply chains, the downstream retailer designs product quality and decides retail price, but outsources the production to an upstream manufacturer. This practice is referred to as “contract manufacturing” (CM). Sometimes, in addition to production outsourcing, the retailer also outsources the design process to the manufacturer. This is referred to as “original design manufacturing” (ODM). This chapter compares these two different outsourcing practices and develops a game-theoretical model to investigate the effects of quality design outsourcing on quality level, price, and the profits of both the retailer and the manufacturer in a market with demand uncertainty. Our analysis reveals that in ODM, the product has lower quality level, lower wholesale price, and lower retail price than in CM. The retailer is better off with ODM when demand uncertainty is low, and better off with CM when demand uncertainty is high. Moreover, when demand uncertainty is high, the manufacturer’s profit may increase with demand uncertainty. In Chapter 3, using data from a Chinese textile manufacturer that supplies a major U.S. retailer, we estimate a logit model and demonstrate that, consistent with our prediction, the retailer is more likely to choose ODM and outsource quality design under low high demand uncertainty.

Language

English (en)

Chair and Committee

Baojun Jiang John Nachbar

Committee Members

Jonathan Weinstein, SangMok Lee, Chakravarthi Narasimhan,

Comments

Permanent URL: https://doi.org/10.7936/927e-z294

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