This research will study the impact of strategic consumer behavior on operations management. Consumers today often look for the best deals. For example, when shopping for fashion apparel, they may wait for end-of-season sales, and when buying household products, they may stock up during price promotions. If unaccounted for, such behavior generates economic inefficiencies: firms lose revenues and consumers may find their desired products unavailable. This project aims to perform the following tasks. 1) Develop models to help firms optimize their pricing and inventory decisions when facing strategic consumers. 2) Provide general principles that help consumers make decisions such as when to buy and how much to buy. 3) Understand how strategic consumer behavior will influence contractual relationships between supply chain partners. 4) Study consumer psychology in operational settings and explore the impact of consumer decision errors on firms' profits and social welfare. The analysis will utilize techniques from game theory, dynamic optimization, stochastic modeling, statistics, as well as concepts from psychology and behavioral economics.
The research involves broader impacts beyond its contribution to the theoretical operations research literature. First, the research will be integrated with educational goals. Results and insights will be incorporated into teaching materials for MBA and PhD courses. Experiential exercises (classroom games and simulations) will be designed for students to gain first-hand experience in related decision problems. Research opportunities will be provided for undergraduate and graduate students. Second, this project is expected to have substantial practical impact. Research results will help shape a new generation of operations management software tools that explicitly measure and account for strategic consumer behavior, and will also provide decision-aids to guide consumer decision-making. This will enhance social welfare by creating a win-win situation for both consumers and firms.