Essays on the Interface Between Operations, Finance and Marketing

運營與融資及運營與營銷的交叉研究

Student thesis: Doctoral Thesis

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Award date10 Jan 2018

Abstract

This thesis studies several topics related to the interactions between operations and financing/marketing. The classical financing literature and marketing literature do not consider the operations decision and its impact. However, the interactions between different departments in firms are common in practice. First, decisions by the financing/marketing department affect the design and implementation of the operations department's decisions, and the reverse is true. Thus, one department may make incorrect decisions without considering the decisions of the other. Second, even if each department makes its own correct decisions, the firm on the whole may be hurt by these decisions. Hence, it is necessary and important for firms to consider the interactions between different departments when making decisions. Thus, this study aims to develop game-theoretical models to incorporate both operations decisions and financing/marketing decisions.

The first essay explores a financing scheme: purchase order financing (POF). Under POF, financial institutions offer loans to suppliers by considering the value of the purchase orders issued by reputable retailers. Compared with (classical) bank financing, the supplier's repayment capability is boosted because of the retailer's purchase order. Generally, retailers have more information about the demand. That is, there is information asymmetry among retailers, suppliers and banks. In addition to illustrating the financing role of POF, we examine the power of POF in addressing this information asymmetry. To this end, we use a game-theoretical model to capture the interactions among three parties (a supplier, a retailer and a bank) in the presence of demand uncertainty and a supplier capital shortage. The results demonstrate that for low wholesale prices, POF not only resolves the information asymmetry but also improves the supplier's and retailer's expected profits compared with bank financing; however, for high wholesale prices, to resolve the information asymmetry, a combination of POF and bank financing is necessary (i.e., they are complementary).

The second and third essays concern the practice of data service providers, which usually use three-part tariffs for pricing data plans. With a three-part tariff pricing scheme, a service provider charges an access fee that includes a usage allowance and a per-unit price for usage in excess of the allowance. Recently, a data exchange platform was launched by a data provider. In this work, we are interested in the impact of such a platform (a practice of data trading). Compared with the existing literature, the novelty of our work is to model consumers' overage aversion, which describes the phenomenon that when a consumer's consumption level is beyond the allowance of the plan, additional consumption is more expensive psychologically. Whereas the second essay focuses on consumer heterogeneity, the third essay focuses on demand uncertainty.

In the presence of consumer heterogeneity, trading reallocates consumption amongst consumers at the cost of cannibalizing the demand for overage consumption. The allocative effect makes consumption more efficient, whereas the cannibalization effect eliminates the overage profit. As a whole, trading is beneficial for the service provider in some instances, but it is not in others. Moreover, we demonstrate that when trading is beneficial to the service provider, it improves the social welfare at the same time, although it may decrease the consumer surplus. We also demonstrate that if there are more consumer types in the market or if transaction fees are allowed, trading will be more beneficial to the service provider.

In the presence of demand uncertainty, the existing literature demonstrates that two-part tariffs are optimal when there is no overage aversion. In contrast, we demonstrate that three-part tariffs beat two-part tariffs when consumers are overage-averse. We then show that the unit production cost determines the firm's optimal strategy: when the unit production cost is low, the firm will provide a tariff associated with a large allowance such that the overage aversion is eliminated, in the sense that consumers will never consume more than the allowance; when the unit production cost is high, a small allowance is offered, such that consumers will only occasionally exhibit overage aversion. Interestingly, we demonstrate that trading always improves the firm's profit in the latter case. The result of several model extensions, including a large uncertainty set, the linear cost of overage aversion and charging transaction fee, confirms that trading is beneficial to the firm when the unit production cost is high.