Exploring the impact of consumer heterogeneity and information asymmetry upon operating policies



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In this dissertation, we show how the firm can improve its revenue and competitiveness through segmenting the market by exploring consumer heterogeneity. In the first essay, we show that asymmetric assortment breadth among two competing retailers can emerge as an equilibrium when consumers differ in their prior knowledge about their product preferences and their shopping costs. Under this equilibrium, the full line retailer expands the market demand by attracting the uninformed consumers with large shopping costs and the single product retailer passes on the savings from a streamlined assortment to the informed consumers by setting a lower price. Therefore, the two retailers soften the competition between them and both achieve higher profits. In the second essay, we consider a setting in which consumers experience distinct instances of need for a durable product at random intervals and derive random amount of utility from each instance. Consumers are differentiated according to the frequency with which they experience instances of need. For a firm that provides a durable product to such a market, we consider the implications of selling versus renting on a per-usage basis. Selling minimizes transaction costs, but may result in inefficient utilization of units that are produced. Alternatively, per-usage rentals allow more utility to be generated per unit of product that is produced. Focusing on these trade-offs, we identify conditions under which the firm should sell, offer per-usage rentals, or offer a combination of the two. In the third essay, we continue to use the durable good framework to study how various forms of government subsidy programs shift consumer's demand patterns and thus generate different magnitude of additional savings in resource consumption. We give the conditions under which each type of cash rebate programs does the best in generating resource savings per dollar spent.