Abstract

This dissertation investigates how uncertainty and competition can lead to asymmetric optimal policies when making operational decisions among multiple options. I examine this question in diverse business environments in the three chapters of this dissertation.

Chapter 2 examines why firms are slow in adopting innovations. While previous research has attributed slow adoption patterns mainly to uncertainties outside the firm, I am able to show that the economic dependence that inherently defines cost relationships inside the firm can significantly influence the timing of adoption. The results are supported with evidence from the semiconductor industry. Chapter 3 analyzes the annual flu vaccine composition decision of the FDA advisory committee. An optimal dynamic policy is derived for this decision. Due to the greater uncertainty in production yields of new vaccines, the optimal thresholds are neither symmetric between retaining and updating the composition nor monotonic over time. The model is fit to past decisions. I am able to demonstrate that the dynamic optimal policy can significantly improve social welfare. Chapter 4 presents a model for evaluating the conditions under which a firm should offer rebate promotions to consumers in a decentralized supply chain comprising one manufacturer and one retailer. The structural form of rebate strategies in equilibrium is fairly complex due to the strategic behavior of both parties: my formal analysis provides a deeper understanding of this complex behavior.

The common theoretical thread among the chapters involves the derivation of an optimal threshold policy in a multi-dimensional space and establishing its asymmetric and non-monotonic properties. The main drivers of such properties are the interactions among multiple tradeoffs under uncertainty or among multiple competitive players. Because the optimal policies take on substantially different forms in the absence of these interactions, ignoring the complicating interactions will eventually lead to a loss of a firm's profit or a loss of social welfare. Therefore, identifying relationships among multiple tradeoffs and multiple competitive players is crucial when making operational decisions.