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Limit price

About: Limit price is a research topic. Over the lifetime, 4865 publications have been published within this topic receiving 148546 citations.


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TL;DR: In this paper, it was shown that the expected compensating variation is not a valid utility indicator, since it is completely insensitive to the consumer's attitudes toward risk, and therefore cannot reflect, the precise factor of interest in such studies.
Abstract: Suppose a consumer faces a price which is uncertain ex ante. A question which often arises is whether the consumer would benefit from a stabilization policy under which the price would then be fixed and known with certainty. Many authors have addressed this question by calculating the expected compensating variation of the price change; others have used expected Marshallian consumer's surplus, often with the explanation that it is a good approximation to expected compensating variation.2 An important unresolved issue, however, is whether expected compensating variation does in fact provide a valid ranking of stochastic prices against stabilized prices, i.e., a ranking in agreement with that given by expected utility. In Section 2, we demonstrate that expected compensating variation is not in general a valid utility indicator. In essence, while utility comparisons under uncertainty require the use of the cardinal properties of (von NeumannMorgenstern) utility functions, the expected surplus measures depend only on ordinal preference rankings. Expected compensating variation, then, is completely insensitive to, and cannot reflect, the precise factor of interest in suchstudies: the consumer's attitudes toward risk. We then derive a set of restrictions on the utility function which are necessary in order for expected compensating variation to be a valid measure. We see that price stabilization policies can only be evaluated with compensating variation if consumer preferences are assumed to satisfy quite stringent requirements. This is in constrast to the familiar certainty case in which compensating variation always provides correct rankings.

53 citations

Journal ArticleDOI
01 Mar 2009
TL;DR: This paper models a noncooperative pure pricing game among multiple competing retailers who sell a certain branded product under price-dependent stochastic demands and demonstrates the use of service level to build price walls which can prevent a huge drop in price, as well as profit.
Abstract: In this paper, we apply the game theory to study some strategic actions for retailers to fight a price war. We start by modeling a noncooperative pure pricing game among multiple competing retailers who sell a certain branded product under price-dependent stochastic demands. A unique Nash equilibrium is proven to exist under some mild conditions. We demonstrate mathematically the incentives for retailers to start a price war. Based on a strategic framework via the game theory, we illustrate the use of service level to build price walls which can prevent a huge drop in price, as well as profit. Three kinds of price walls are proposed, and the respective strengths and weaknesses have been studied. Analytical conditions, under which a price wall can effectively prevent big drops in both market share and profit, are developed. Aside from the proposed price walls, two other pricing strategies, which can lead to an all-win situation, are examined.

53 citations

Journal ArticleDOI
TL;DR: In this paper, the authors consider a system in which two competing servers provide customer-intensive services and the service reward is affected by the length of service time, and they show that the service provider revenue function is unimodal in the service rate, its decision variable, and show that service rate competition has a unique and stable equilibrium.
Abstract: We consider a system in which two competing servers provide customer-intensive services and the service reward is affected by the length of service time. The customers are boundedly rational and choose their service providers according to a logit model. We demonstrate that the service provider revenue function is unimodal in the service rate, its decision variable, and show that the service rate competition has a unique and stable equilibrium. We then study the price decision under three scenarios with the price determined by a revenue-maximizing firm, a welfare-maximizing social planner, or two servers in competition. We find that the socially optimal price, subject to the requirement that the customer actual utility must be non-negative, is always lower than the competition equilibrium price which, in turn, is lower than the revenue-maximizing monopoly price. However, if the customer actual utility is allowed to be negative in social optimization, the socially optimal price can be higher than the other two prices in a large market. [ABSTRACT FROM AUTHOR]

53 citations

Journal ArticleDOI
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.

53 citations

Journal ArticleDOI
TL;DR: In this paper, the authors present strategic recommendations for improving the way in which prices are changed within organizations, by broadening the definition of the costs of changing price and then presenting strategic recommendations.

53 citations


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Performance
Metrics
No. of papers in the topic in previous years
YearPapers
20238
202215
20217
202013
201922
201837