On the Learning Benefits of Resource Flexibility

Resource flexibility, arguably among the most celebrated operational concepts, is known to provide firms facing demand uncertainty with such benefits as risk pooling, revenue-maximization optionality, and hedging. In this paper, we uncover a heretofore unknown benefit: establish that resource flexibility facilitates learning when latter censored, which could, in turn, enable make better-informed future decisions, thereby increasing profitability. Further, quantify these of find they could be same order magnitude extensively studied risk-pooling flexibility. This suggests flexibility’s first-order consideration extant theories, view only ability act ex post, underestimating its true value desirable, for example, it enables managers better ante capacity, assortment, or pricing decisions periods. paper was accepted by Vishal Gaur, operations management.