Electronic Thesis and Dissertation Repository

Degree

Doctor of Philosophy

Program

Business

Supervisor(s)

Dr. Fredrik Odegaard, Dr. Xinghao Yan

Abstract

Many firms and organizations with already-optimized business functions are under market pressure to protect their narrow profit margins. Their need for supplemental and reliable revenues calls for performance optimization beyond the core business functions. Motivated by applications from online social media and the airline industry, in my dissertation, I focus on the revenue management and pricing decisions of customer-based plans and programs. More formally, the research question addressed in this study is: How can firms effectively use customer-based pricing strategies to boost revenues?

My dissertation consists of three essays. In the first essay, I analyze the ongoing competition among online social media (OSMs) to attract users. Concentrating on the importance of community retention and expansion to OSMs in preserving financially sustainable business models, I investigate whether OSMs should develop revenue sharing programs and reward their contributing users from their limited revenue streams. I present a duopoly OSM game (with a less favourable and a more favourable OSM) in which heterogeneous users choose their levels of contribution with respect to each OSM based on their preferences. In this chapter, I explore how online users’ actions and perspectives impact the outcome of the competition among OSMs. Furthermore, I investigate how small social media firms can compete with a dominant firm in the market.

In the second essay, I study the role of ancillary revenue and its significance for industries such as airlines. These firms can barely survive without ancillary fees, even when their capacities are almost fully utilized. I consider the case in which customers-changing rates between flights are stochastic but decreasing with reference to the change fees. In this essay, I examine how firms should design change fees to manage customers’ switching behaviour. Specifically, I incorporate change fee revenues as a portion of total revenue structure and investigate how firms should update their markdown pricing strategies when they face price-tracking customers.

In the third essay, I focus on the dynamics between a firm and customers who are uncertain about their future travel plans. While the firm maximizes its revenue by imposing optimal change fees, customers consider their travel plan uncertainties and maximize their utilities by responding strategically to these fares. In this study, I seek to answer two important policy questions: Although imposing a change fee could increase total revenue, does it burden the firm with a lower customer demand? How should the optimal monopolistic price be set with the presence of a change fee? Without imposing any distributional assumptions, I analytically derive each market player’s best reaction to the other to prescribe the characteristics of the firm/customer interaction equilibrium.


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