Strategic product line selection and pricing

We study the impact of operations decisions on product line selection and pricing strategies. The first part of this thesis addresses the strategic impact of modular design on the optimal length and price of a differentiated product line. We represent consumer demand with a Bayesian logit model. We also break operations costs into product design and production components. Our analysis shows that reducing product development costs via modular design always makes it attractive to offer greater product variety. But reducing production costs can sometimes motivate a reduction in variety for a risk-averse producer in a multiple segment market. We also characterize the impacts of degree of modularity and production cost on price markup and market share.; In the second part of the thesis, we study the effects of inventory and competition on product assortment and pricing decisions. We first propose a static approximation of dynamic demand substitution behavior based on a fluid network model and a service-inventory mapping. We then apply the approximation to two previously intractable applications. First, we study a price and service competition between single-product retailers. We find that competition results in a higher level inventory, but that aggregate profit and inventory level increase to positive constants as the number of retailers goes to infinity. Second, we study a duopolistic competition on price, service and product assortment. We find that competition on product assortment may result in shorter product lines and less inventory than in an analogous monopolistic market.