Showing papers on "Limit price published in 2017"
TL;DR: The findings suggest that the manufacturer should post the direct price before or upon, but not after, setting the wholesale price for the retailer, which constitutes the subgame perfect Nash equilibrium of the noncooperative game between channel members.
133 citations
TL;DR: A pricing policy is demonstrated that incurs a regret of O(log^(m) T), or m iterations of the logarithm, and it is shown that this regret is the smallest possible up to a constant factor.
Abstract: In a dynamic pricing problem where the demand function is not known a priori, price experimentation can be used as a demand learning tool. Existing literature usually assumes no constraint on price changes, but in practice sellers often face business constraints that prevent them from conducting extensive experimentation. We consider a dynamic pricing model where the demand function is unknown but belongs to a known finite set. The seller is allowed to make at most m price changes during T periods. The objective is to minimize the worst case regret, i.e., the expected total revenue loss compared to a clairvoyant who knows the demand distribution in advance. We demonstrate a pricing policy that incurs a regret of O(log^(m) T), or m iterations of the logarithm. We further show that this regret is the smallest possible up to a constant factor. Our analysis provides important structural insights into optimal pricing strategies. Finally, we describe an implementation at Groupon, a large e-commerce marketplace for daily deals. The field study shows significant impact on revenue and bookings.
98 citations
TL;DR: In this article, the authors empirically estimate the impact of the price distortion on output growth in China, using monthly, time series data from 2005M1 to 2012M12, and find that regulatory price distortion negatively affects output growth.
97 citations
TL;DR: In this article, linear and nonlinear autoregressive distributed lag (ARDL) models are applied to examine the symmetric and asymmetric pass-through effect of oil price changes on four domestic price indices in Malaysia.
85 citations
TL;DR: This paper incorporates reference price effects into a deteriorating inventory problem when the demand rate depends on displayed stock level and selling price simultaneously, and explores the relationships between optimal pricing decisions and an initial reference price based on mild assumptions.
84 citations
TL;DR: A dynamic pricing model where the demand function is unknown but belongs to a known finite set and the seller is allowed to make at most m price changes during T periods is considered, to minimize the worst-case regret.
Abstract: In a dynamic pricing problem where the demand function is not known a priori, price experimentation can be used as a demand learning tool. Existing literature usually assumes no constraint on price changes, but in practice, sellers often face business constraints that prevent them from conducting extensive experimentation. We consider a dynamic pricing model where the demand function is unknown but belongs to a known finite set. The seller is allowed to make at most m price changes during T periods. The objective is to minimize the worst-case regret-i.e., the expected total revenue loss compared with a clairvoyant who knows the demand distribution in advance. We demonstrate a pricing policy that incurs a regret of OlogmT, or m iterations of the logarithm. Furthermore, we describe an implementation of this pricing policy at Groupon, a large e-commerce marketplace for daily deals. The field study shows significant impact on revenue and bookings.
The e-companion is available at https://doi.org/10.1287/opre.2017.1629 .
77 citations
TL;DR: Though self-matching can negatively impact a retailer when consumers pay the lower price, two novel mechanisms that can make self- matching profitable in a duopoly setting are uncovered.
Abstract: Multichannel retailing has created several new strategic choices for retailers. With respect to pricing, an important decision is whether to offer a “self-matching policy,” which allows a multichannel retailer to offer the lowest of its online and store prices to consumers. In practice, we observe considerable heterogeneity in self-matching policies: There are retailers who offer to self-match and retailers who explicitly state that they will not match prices across channels. Using a game-theoretic model, we investigate the strategic forces behind the adoption (or non-adoption) of self-matching across a range of competitive scenarios, including a monopolist, two competing multichannel retailers, as well as a mixed duopoly. Though self-matching can negatively impact a retailer when consumers pay the lower price, we uncover two novel mechanisms that can make self-matching profitable in a duopoly setting. Specifically, self-matching can dampen competition online and enable price discrimination in-store. Its ...
75 citations
TL;DR: In this paper, a real options model for estimating the optimal subsidy for renewable energy power generation project by using stochastic process to describe the market price of electricity, CO2 price and investment cost was proposed.
Abstract: This paper proposes a real options model for estimating the optimal subsidy for renewable energy power generation project by using stochastic process to describe the market price of electricity, CO2 price and investment cost. Two indicators, i.e., project value and threshold value, are used to derive the optimal subsidy. The least squares Monte Carlo simulation method is used to solve the model. The proposed model is used to empirically evaluate the optimal level of subsidy for solar photovoltaic power generation in China. The results show that carbon emission trading scheme helps reduce subsidy. Unit generating capacity, market price of electricity, CO2 price and the volatility of investment cost are negatively related with subsidy, whereas investment cost and the volatility of electricity price and CO2 price are positively related with subsidy. It is suggested that Chinese governments take some measures, e.g., promoting technological progress, establishing a nationwide carbon emission trading market, promoting the competition in renewable energy industry as well as maintaining the stability of CO2 price and electricity price, to reduce the required subsidy.
71 citations
TL;DR: In this paper, the feasibility of battery energy storage in China's electricity market was evaluated using a price arbitrage model, which can be used to determine the optimal investment scale and operation mode of energy storage.
68 citations
TL;DR: The authors compared the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects submit a price forecast only; choose quantity to buy/sell and perform both tasks.
Abstract: This experiment compares the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects: (1) submit a price forecast only; (2) choose quantity to buy/sell and (3) perform both tasks. We find deviation of the market price from the fundamental price in all treatments, but to a larger degree in treatments (2) and (3). Mispricing is therefore a robust finding in markets with positive expectation feedback. Some very large, recurring bubbles arise, where the price is three times larger than the fundamental value, which were not seen in former experiments.
64 citations
TL;DR: In this article, the authors present a simple equilibrium model that explains the fundamental market factors that can rationalize such a "regime switch" by OPEC: (i) the growth of US shale oil production; (ii) the slowdown of global oil demand; (iii) reduced cohesiveness of the OPEC cartel; and (iv) production ramp-ups in other non-OPEC countries; while (v) reductions in US shale costs act against these factors.
TL;DR: The impact of cost reduction under dynamic pricing, price commitment, and price matching when cost reduction can come from production learning or from technology advancement is examined.
Abstract: Many products undergo cost reductions over their product life cycles. However, strategic customers may have more incentive to wait if they expect a cost reduction to lead to a price drop. A firm that does not face any uncertainty can use pricing strategies such as price commitment and price matching to alleviate the strategic waiting of customers. However, these pricing strategies provide less flexibility than dynamic pricing for a firm facing uncertainty. In this paper, we examine the impact of cost reduction under dynamic pricing, price commitment, and price matching when cost reduction can come from production learning or from technology advancement. The firm makes pricing decisions when facing uncertainty in future cost, and strategic customers decide whether to wait when facing uncertainty in future price. We show that in general the firm’s profit is higher when future cost is more uncertain, but not necessarily when cost reduction is more significant. In addition, production learning and technology ...
TL;DR: It is found that under intense price competition, with intensity characterized by the underlying parameters of market demand, firms may suffer from a decentralized structure, particularly under high flexibility induced by high capacity, where revenue based sales incentives motivate sales/marketing to make aggressive price cuts that often erode profit margins.
Abstract: We study two firms that compete on price and lead-time decisions in a common market. We explore the impact of decentralizing these decisions, as made by the marketing and production departments, respectively, with either marketing or production as the leader. We compare scenarios in which none, one, or both of the firms are decentralized to see whether decentralization can be the equilibrium strategy. We find that under intense price competition, with intensity characterized by the underlying parameters of market demand, firms may suffer from a decentralized structure, particularly under high flexibility induced by high capacity, where revenue-based sales incentives motivate sales/marketing to make aggressive price cuts that often erode profit margins. In contrast, under intense lead-time competition, a decentralized strategy with marketing as the leader can not only result in significantly higher profits, but also be the equilibrium strategy. Moreover, decentralization may no longer lead to lower prices or longer lead-times if the production department chooses capacity along with lead-time.
TL;DR: In this article, the authors used time-series data to provide an empirical analysis of how the differentiation of broadband tariffs with respect to retail prices affects fixed broadband subscription, based on a unique dataset of 10,200 retail broadband offers spanning the 2003-2011 period and including 23 EU member states.
Abstract: While second-degree price discrimination is standard in commercial practice in many industries, consumer advocates and public interest groups have reacted with skepticism to tendencies to move away from flat rates and introduce greater tariff diversity. This paper uses time-series data to provide an empirical analysis of how the differentiation of broadband tariffs with respect to retail prices affects fixed broadband subscription. The empirical analysis is based on a unique dataset of 10,200 retail broadband offers spanning the 2003–2011 period and including 23 EU member states. Results show that an increase in tariff diversity provides a significant impetus to broadband adoption, wherefore demands by several public interest groups to limit price discrimination in broadband markets should be viewed with some caution as reduced price discrimination may come at the cost of lower penetration rates.
TL;DR: It is shown that PAYW has a number of advantages over PAAP such that it is well suited for some industries but not for others, and it allows a firm to price discriminate among heterogenous consumers.
Abstract: Some firms use a curious pricing mechanism called "pay as you wish" pricing PAYW. When PAYW is used, a firm lets consumers decide what a product is worth to them and how much they want to pay to get the product. This practice has been observed in a number of industries. In this paper, we theoretically investigate why and where PAYW can be a profitable pricing strategy relative to the conventional "pay as asked" pricing PAAP strategy. We show that PAYW has a number of advantages over PAAP such that it is well suited for some industries but not for others. These advantages are as follows: 1 PAYW helps a firm to maximally penetrate a market; 2 it allows a firm to price discriminate among heterogenous consumers; 3 it helps to moderate price competition. We derive conditions under which PAYW dominates PAAP and discuss ways to improve the profitability of PAYW.
TL;DR: In this article, a deterministic mathematical model is proposed to study the influence of a number of factors, such as price elasticity of demand, age-sensitivity of demand and age profile of initial inventory, on revenue and spoilage.
TL;DR: This paper considers a closed loop supply chain with the manufacturer as the Stackelberg leader, and concludes that higher reference price coefficient results in lower manufacturer and retailer profits, however, the profit of the third party increases in thereference price coefficient.
Abstract: This paper considers a closed loop supply chain with the manufacturer as the Stackelberg leader. The manufacturer faces three different reverse channels, i.e., (1) manufacturer-managed, (2) retailer-managed, or (3) third party-managed channels. The reference price affects the purchase decision of consumers. Based on game theory, we discuss the reference price effect on the performances across three decentralized reverse channels, and examine the impact of reference price parameter (i.e., reference price coefficient in this paper) on optimal strategies. We conclude that higher reference price coefficient results in lower manufacturer and retailer profits. However, the profit of the third party increases in the reference price coefficient. In addition, some meaningful insights can be derived by comparison without the reference price effect in our models. We found that the scenario without reference price effect is generally superior to that with reference price effect.
TL;DR: It is shown that the retailer does not always prefer price leadership over a manufacturer, and that the retailers' strategic choice over price leadership with one manufacturer depends upon its price leadership type with the competing manufacturer and the degree of product substitutability.
TL;DR: In this article, the authors present empirical evidence of the effects of fuel price regulation in Austria and Western Australia using difference-indifferences methods to estimate treatment effects of the implementation of such pricing rules.
Abstract: Increasing price levels, high price volatility and the suspicion of collusive behavior are important topics of public debates on competition in retail gasoline markets in many countries. Several governments and competition authorities introduced fuel price regulations in form of restrictions on the frequencies of fuel price changes per day. We present empirical evidence of the effects of fuel price regulation in Austria and Western Australia using difference-indifferences methods to estimate treatment effects of the implementation of such pricing rules. Our estimates provide evidence that fuel price levels in Austria decreased after implementation of regulation. However, we cannot find robust significant effects of regulation on fuel price levels in Western Australia. JEL-Classification: L52, L11, L71
TL;DR: Two new mathematical models were developed that showed that discounts increase the pool of profits for the supplier and the buyer and provide a better utilization of truck capacity and lower transportation cost and benefit the end customer by providing a product at a competitive price.
TL;DR: In this paper, the authors investigate whether sellers treat consumers differently on the basis of how well informed consumers appear to be, and they implement a large-scale field experiment in which callers request price quotes from automotive repair shops.
Abstract: The authors investigate whether sellers treat consumers differently on the basis of how well informed consumers appear to be. They implement a large-scale field experiment in which callers request price quotes from automotive repair shops. The authors show that sellers alter their initial price quotes depending on whether consumers appear to be correctly informed, uninformed, or misinformed about market prices. The authors find that repair shops quote higher prices to callers who cite a higher benchmark price and that women are quoted higher prices than men when callers signal that they are uninformed about market prices. However, gender differences disappear when callers mention a benchmark price for the repair. Finally, the authors find that repair shops are more likely to offer a price concession if asked to do so by a woman than if asked by a man.
TL;DR: The Swedish market for passenger railway services has been open to competition since the year 2010 as discussed by the authors, although minor entries have been made since this date, the incumbent SJ only faced substantial competition since 2010.
TL;DR: In this paper, the authors estimate the dynamic effects of crude oil price shocks on retail fuel prices, the pass-through, using the local projection approach of Jorda (2005).
TL;DR: In this article, the authors examined the price elasticity of high-priced wine brands in Australia and found that consumers are more willing to pay for the quality they desire when prices are high.
TL;DR: Variation in the timing of access to a new source of price information is used to show how access to and search for price information leads consumers to pay significantly less for care.
Abstract: Consumers rarely know the price of medical care before they consume it. I use variation in the timing of access to a new source of price information to show how access to and search for price information leads consumers to pay significantly less for care. I provide suggestive evidence that insurance coverage inhibits the use of price information, rationalizing the relatively low rates of search. The results indicate that availability of price information could have large impacts on prices even in the absence of general equilibrium effects.
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TL;DR: In this article, the authors quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly and find that zone pricing produces higher consumer surplus than finer pricing discrimination does.
Abstract: We quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel data covering the retail home improvement industry, we find that Home Depot would benefit from finer pricing but that Lowe’s would prefer coarser pricing. The use of zone pricing softens competition in markets where firms compete, but it shields consumers from higher prices in markets where firms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than finer pricing discrimination does.
TL;DR: In this paper, the authors derive a rule of price-quality relationship that stresses the influence of quality on price through the effects of cost (positive), sales (negative), and markup (positive).
Abstract: This article analyzes the conditions under which better product quality implies higher or lower product price. In an optimal control framework, I make the following assumptions: The firm sets the dynamic pricing and product innovation policies; product innovation raises quality, which drives production cost, and consumers are sensitive to price and quality. I derive a rule of price-quality relationship that stresses the influence of quality on price through the effects of cost (positive), sales (negative), and markup (positive). This article shows that, while maximizing profit and despite a quality and cost increases, the firm may decrease product prices because of the possibility of generating more sales as a result of combining better quality with lower price. This sales effect solves the puzzle of a negative price-quality relationship. More generally, the sales effect mitigates the ability of price to convey information about quality.
TL;DR: It is found that introducing a new product can also result in a drop in price of an existing product, enabling strategic pricing by firms, in a two-product, two-period model with stochastic demands.
Abstract: We investigate optimal pricing and capacity planning decisions for product-line settings such as introducing a new product or dropping an existing one. We consider a two-product, two-period model with stochastic demands, where price and capacity decisions are made at the outset. Investment in capacity must be traded-off against the possibility of buying at higher spot market prices due to shortage in capacity or charging a higher price to manage the demand. Prior studies argue that introducing an additional product to the product-line strains capacity, resulting in an increase in the price of an existing product. In contrast, we find that introducing a new product can also result in a drop in price of an existing product, enabling strategic pricing by firms. The necessary condition for this to occur is that the demand uncertainties for the products are of similar magnitude and negatively correlated. Similar insights are obtained for the setting where an existing product is dropped from the product-line. H...
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TL;DR: In this paper, the authors provide an empirical analysis of broadband tariffs with respect to retail prices and show that an increase in tariff diversity provides a significant impetus to broadband adoption, wherefore demands by some public interest groups to limit price discrimination in broadband markets should be viewed with some caution as reduced price discrimination may come at the cost of lower penetration rates.
Abstract: While second-degree price discrimination is standard in commercial practice in many industries, consumer advocates and public interest groups have reacted with skepticism against tendencies to move away from flat rates and introduce greater tariff diversity. This paper provides an empirical analysis how the differentiation of broadband tariffs with respect to retail prices affects fixed broadband subscription using time-series data. The empirical analysis is based on a unique dataset of 10,200 retail broadband offers spanning the 2003-2011 period and including 23 EU member states. Results show that an increase in tariff diversity provides a significant impetus to broadband adoption, wherefore demands by some public interest groups to limit price discrimination in broadband markets should be viewed with some caution as reduced price discrimination may come at the cost of lower penetration rates.
TL;DR: It is shown that there will not ordinarily be a single value-based price but rather a schedule of prices with different volumes of buyers at each price, and that the profit-maximizing price can be higher than that associated with assumed values of quality-adjusted life-years.