Designing pricing mechanisms in the presence of rational customers with multi-unit demands

by Gulcu, Altan

Abstract (Summary)
First, we analyze the optimal design of a markdown pricing mechanism with preannounced prices. In the presence of limited supply, buyers who choose to purchase at a lower price may face a scarcity in supply. Our focus is on the structure of the optimal markdown mechanisms in the presence of rational or strategic buyers who demand multiple units. We first examine a complete information setting where the set of customer valuations is known but the seller does not know the valuation of each individual customer (i.e., cannot exercise perfect price discrimination). We then generalize our analysis to an incomplete valuation information setting where customer valuations are drawn from known distributions. For both settings, we compare the sellers profit resulting from the optimal markdown mechanism and the optimal single price. We provide a number of managerial insights into designing profitable markdown mechanisms. Next, we focus on the purchasing behavior of the customers and the optimal pricing decisions of the seller assuming that the seller has incomplete information about the customer demand. Each buyer demands multiple units of the homogeneous product that the seller is offering via a priority pricing mechanism with multiple prices, where the only difference is the availability/scarcity of the supply at each price. We provide managerial insights based on the results from a stylized model. Finally, building on the incomplete demand information setting, we focus on the value of improved information about the customer demand to the seller. We investigate whether improved information benefits the seller and if the seller would prefer to share the improved demand information with the customers.
Bibliographical Information:

Advisor:mark ferguson; julie swann; pinar keskinocak; wedad elmaghraby; paul griffin

School:Georgia Institute of Technology

School Location:USA - Georgia

Source Type:Master's Thesis

Keywords:industrial systems engineering


Date of Publication:01/09/2009

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