Essays on Optimal Hierarchical Structure and Durable Goods Supply Chain Management

The first essay explores how the economics of information processing affects the design of managerial hierarchy when queuing phenomena and task complexity are considered. The cost of information processing consists of the cost of time delay and the cost of capacity to process information and make decisions. We assume that time delay follows a queuing process and that there are complexity-related inefficiencies when processing data from n data sources. Some new results emerge: hierarchical organizations exhibit diseconomies of scope for small n, and economies of scope for large n. The capacity devoted to processors increases with tier, although their capacity utilization falls. Under specific conditions, when a firm expands n, the size of upper management does not change.;In the second essay, we investigate how demand volatility affects durable goods producers' production and pricing decisions by using a model of an infinite-horizon sequential game between a monopolistic producer and strategic consumers. We formulate the problem of a monopolist durable goods producer as a discrete-time Markov Decision Process and prove certain structural properties of the sales and production policy. These structural properties facilitate an efficient computational algorithm, which we use in running numerical experiments to explicate the producer's strategy and to conduct equilibrium comparative statics analysis. We show that a simple myopic policy is optimal when each period's demand is independent and identically distributed. When demand is correlated across periods, the producer's optimal production and sales policy is not myopic and depends on various market conditions.;In the last essay, I investigate a durable goods producer's capacity and wholesale price choices and a retailer's selling and leasing strategy under demand uncertainty. My result indicates that with strategic consumers timing their purchase of a product, the producer is worse off with decentralization through wholesale-price contracts in the presence of constant replacement sales, and he prefers using a retailer that leases than one that sells. I also show that more positive inter-period correlation of economic conditions increases the producer's expected profit but reduces the retailer's expected profit. Whereas, higher economic volatility reduces the producer's expected profit but increases the retailer's expected profit.