Date of Award

2013

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Graduate Group

Operations & Information Management

First Advisor

Gerard P. Cachon

Second Advisor

Marshall L. Fisher

Abstract

This dissertation contains three essays. The first essay, entitled \textit{ "Does Inventory Increase Sales? The Billboard and Scarcity Effects in U.S. Automobile Dealerships"} looks into the relationship between inventory and demand beyond the obvious stockout effect. Inventory might signal a popular, and therefore a desirable, product, thereby increasing sale. Or, inventory might encourage a consumer to continue her search, thereby decreasing sales. In this paper we seek to identify these effects in U.S. automobile sales. Our primary research challenge is the endogenous relationship between inventories and demand. Hence, our estimation strategy relies on weather shocks at upstream production facilities to create exogenous variation in downstream dealership inventory. We find that the impact of adding a vehicle of a particular model to a dealer's lot depends on which cars the dealer already has. If the added vehicle expands the available set of sub-models (e.g., adding a four-door among a set that is exclusively two-door), then sales increase. But if the added vehicle is of the same sub-model as an existing vehicle, then sales actually decrease. Based on this insight, given a fixed set of cars, they should be allocated among a group of dealers so as to maximize each dealer's variety. The second essay, entitled \textit{"Severe Weather and Automobile Assembly Productivity"}, is related to the first one in that presents a detail analysis of the exogenous shock presented there: The weather impact on vehicles assembly lines. It is apparent that severe weather should hamper the productivity of work that occurs outside. But what is the effect of extreme rain, snow, heat and wind on work that occurs indoors, such as the production of automobiles? Using weekly production data from 64 automobile plants in the United States over a ten-year period, we find that adverse weather conditions lead to a significant reduction in production. Across our sample of plants, severe weather reduces production on average by 1.5\%. While it is possible that plants are able to recover these losses at some later date, we do not find evidence that recovery occurs in the week after the event. Our findings are useful both for assessing the potential productivity shock associated with inclement weather as well as guiding managers on where to locate a new production facility. The third essay, entitled \textit{"Integration of Online and Offline Channels in Retail: The Impact of Sharing Reliable Inventory Availability Information"}. In this essay we focus the attention on the impact of inventory information disclosure. Increasingly, retailers are integrating their offline and online channels to reduce costs or to improve the value proposition they make to their customers. Using a proprietary dataset, we analyze the impact of the implementation of a buy-online-pickup-in-store project. Contrary to our expectations, the implementation of this project is associated with a reduction in online sales and an increase in store sales and traffic. We interpret the results in light of recent operations management literature that analyzes the impact of sharing inventory availability information online. The implementation of a buy-online-pickup-in-store project provides an exogenous shock to the verifiability of the inventory information that the firm shows to their customers. Our analysis illustrates the challenges of drawing conclusions about complex interventions using single channel data.

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