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Credit card companies typically offer limited-time teaser interest rates [also known as promotional annual percentage rates (APRs)] to attract new customers. Firms hope that the promotional APRs will encourage consumers not only to open accounts, but also to transfer balances from other credit cards, revolve credit card balances, or take cash advances, each of which would lead to an increase in the firm’s profit. It is important to understand the effect of the promotional rates on customer behavior. Important research questions include: Does the lure of a low APR increase indebtedness of a customer over the short run and the long run? Between two segments—needy and opportunistic customers—which group is more likely to take advantage of the offer? A related important question for firms is whether the low APRs increase the financial risk (i.e., probability of delinquency or the probability of default of a customer) thus imposing costs of monitoring and balance recovery on the firm. Given the limited published research on these topics, we take a closer look at some of the behavioral patterns associated with the offer of promotional APRs in this study.

•Channel interactions significantly reduce the retailer's incentives for bundling.•Examining consumer segments reveals how bundling can still be optimal.•PB* is a manufacturer strategy of selling a bundle that cannot be unbundled.•The manufacturer should prefer PB* over inducing the retailer to bundle.•Surprisingly the channel and retailer benefit when the manufacturer uses PB*. This paper examines how channel interactions influence product bundling decisions by channel members. Specifically, what products or bundles should be offered, at what prices, and by which channel members, in equilibrium. To answer this, we analyze Stackelberg games between a manufacturer and retailer, with pricing and bundling as decision variables, under discrete and uniform continuous distributions of reservation prices. We find that selling pure components by both manufacturer and retailer is the equilibrium except in a narrow region of the parameter space. However, if the manufacturer can sell bundles and prevent unbundling, then such a bundling strategy is optimal in many cases. Interestingly, the channel and retailer also benefit from this strategy.

Consumption and variation in consumption are driven by both how products or services are supplied to the end consumer and also by how the consumer, herself, chooses them. For example, an individual decides what products to consume as a varied bundle that matches her personality, lifestyle, demographics, environment or nutritional requirements. Similarly, the consumption bundle can be supplied directly by the retailer or manufacturer through price, bundle promotions, etc. Therefore, through three essays in my dissertation, the goal has been to understand variation in consumption as an interaction between supply and demand. The three research directions have been: (1) how does variation in consumption across brands influence and is influenced by variation in consumption across categories; (2) how does variation in consumption change with different consumption factors; (3) how do the manufacturer and retailer's product strategies influence variation in consumption and what is the implication on profits. My first essay studies supply factors that could influence varied consumption. Using a Stackelberg game with pricing and bundling decision variables, I examine the application of product bundling by a manufacturer and retailer to see how it is affected by channel interactions and by consumers' relative willingness to pay for the component products. I find that the retailer always adopts pure components and the same strategy is also weakly dominant for the manufacturer. Moreover, when competing heterogeneous retailers are allowed in the model, the manufacturer adopts bundling strategies. I use the model to explain observed bundling behavior in the cable TV and digital music industries. In my second and third essays I study demand factors that influence varied consumption. Using a rich diary panel data, I undertake a comprehensive study of individual consumption of snacks across a large number of categories and brands. I study whether heavy snackers engage in greater varied consumption and I find that heavy snackers do seek variation in consumption but at the brand level and not at the category level. Further, I investigate consumption patterns at the micro level, across snacking occasions. I propose a consumption model with satiation, satiety and bi-dimensional state dependence accounting for consumers' daily and day-to-day snacking patterns. I find that consumers are variety seekers throughout the day, but are inertial across days. My research has implications for both manufacturing managers and academic researchers.