| This dissertation research is broadly in the area of retail merchandising.; Uncertainty in consumer choice decisions results in demand uncertainty and temporary stockouts. These stockouts in turn impact consumer choice decisions. This research draws on the theory of discrete choice, originating primarily in psychology and economics, and inventory theory and game theory to model this complex phenomenon.; The research primarily addresses the following question: How should a retail category made up of substitutable variants be managed? Consumer choice is the primary mechanism responsible for shifting demand among variants as assortment variety is varied. Therefore a study of assortment decisions must consider these choice effects. It is natural to ask whether these effects are significant, and to what extent they impact the retailer's inventory decisions and profits.; The first two papers in the dissertation address optimal assortments in the presence of consumer choice behavior. In both papers, the inventory costs of the retailer are accounted for using single period newsboy-like models, while the choice decisions of consumers result from utility maximization criteria, and the assortment is managed by a single decision maker. In the first paper, we consider assortment decisions using what we call a static model of consumer substitution. The consumer choice decisions depend on the set of variants originally offered in the assortment, but not on the current inventory status of variants. Results are derived on the structure of the optimal assortment. Also, insights are provided on how factors such as margin and market size, affect the optimal level of assortment variety. An interesting development is the formal definition of the level of fashion in a category using the theory of majorization of vectors. The assumptions of the static model are then generalized to allow for dynamic consumer substitution. Substitution decisions occur dynamically based on the inventory status at the time a consumer makes his/her choice. We show that under very general assumptions on the demand process, the total sales of each variant are concave in their own inventory levels and possess the so-called decreasing differences property. Also, there can be systematic distortions in inventory decisions if substitution effects are ignored.; The second part of the dissertation examines the case where each variant in the retail assortment is managed by different decision makers.; In the first paper on this topic, we establish several important theoretical properties of a multi-firm inventory game under general assumptions of dynamic consumer substitution. The existence of a Nash equilibrium is established. Additionally, if the firms are symmetric, the equilibrium is also proven to be unique. We also show that competition leads to stocking levels that are higher than those in the cooperative case. For symmetric firms, as competition increases, overstocking becomes so severe as to result in zero profits for all firms. In the second paper, we embed the inventory game under dynamic consumer substitution in a two echelon supply chain setting. The two echelons consist of manufacturers and retailers. Numerical results reveal incentive compatibility problems. These problems become less important as the number of players in any one echelon in the channel increase. (Abstract shortened by UMI.)... |
