Reverse Price Discrimination with Bayesian Buyers

This paper studies price discrimination under the situation in which buyers' prior valuations are initially observable by a seller but buyers receive further information about a product or service which remains private thereafter. The buyers interpret new information via Bayes' rule. We show that, in this environment, prices are not monotone in buyers' prior valuations. Interestingly, this results in the possibility that a seller intentionally offers a higher price to a low valuation buyer rather than a high valuation buyer (Reverse Price Discrimination). We derive this result in both monopoly and duopoly markets.     

Price Discrimination with Demarketing

We study how demarketing interacts with pricing decisions to explain why and when it can be employed as the seller's optimal strategy. In our model, a monopolistic seller offers different price‐quality bundles of the product. A consumer's preference is private information. With demarketing, consumers must make a costly effort to purchase and/or utilize the product, whereas with marketing, the seller instead makes the effort so that the consumer's purchasing decision is independent of the cost of effort. Our result suggests that, for small or large effort costs, it is optimal for the seller to engage in marketing. For intermediate effort costs, however, demarketing can be optimal. With demarketing, the seller induces only the consumers with high valuation to make transaction effort. By doing so, the seller can price discriminate more effectively, thus extracting more surplus. We extend our analysis to the case where the seller can offer special deals through exclusive sales channels along with demarketing. Then, demarketing can be optimal even for large costs of effort.     

Waterfall Versus Sprinkler Product Launch Strategy: Influencing the Herd

A seller decides the price and sequence in which a product of unknown value is introduced to consumers. Consumers inspect the product before consumption and observe past prices and sales. Consumption at a high price is informative for later consumers as it indicates that the product is likely to be of high value. I show that on an average prices decrease over time. However, expected revenue on an average rises over time. For a high enough discount factor, I find that for extreme beliefs the firm introduces the product to all consumers but for intermediate values the product is introduced only to one consumer.     

Number of sellers,average prices,and price dispersion

A variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market (seller density) on prices and price dispersion. We review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density, average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets. Controlling for station-level characteristics, we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas.     

PRICE DISPERSION AND COMPETITION WITH DIFFERENTIATED SELLERS*

I measure price dispersion among differentiated retail gasoline sellers and study the relationship between dispersion and the local competitive environment. Significant price dispersion exists even after controlling for differences in station characteristics, and price differences between sellers change frequently. The extent of price dispersion is related to the density of local competition, but this relationship varies significantly depending on the type of seller and the composition of its competitors. These findings are consistent with interactions between seller and consumer heterogeneity that are not well understood in the existing price dispersion literature.     

The Strategic Role of Listing Price in Marketing Real Estate: Theory and Evidence

The seller of a real estate property and his broker have two primary goals: to sell the properly for as high a price as possible and as quickly as possible. While these are separate objectives, they are closely related through the listing price of the seller. The listing price affects how long it takes to find a buyer (i.e., Time On the Market = TOM), and TOM influences the price that results from the bargaining between the seller and the buyer. This leaves the seller and his agent with an important question: What is the optimal price to be asked for the property? The objective of this research is to provide a theoretical and empirical analysis of the impact of listing price on TOM and the transaction price.     

Secret reserve prices in first-price auctions

This article offers a theoretical explanation for the use of secret reserve prices in auctions. I study first-price auctions with and without secret reserve price in an independent private values environment with risk-neutral buyers and a seller who cares at least minimally about risk. The seller can fix the auction rules either before or after she learns her reservation value. Fixing the rules early and keeping the right to set a secret reserve price can be strictly optimal. Moreover, I describe the relation of using a secret reserve price to phantom bidding and non-commitment to sell.     

HOW DOES THE INTERNET INFLUENCE PRICE DISPERSION? EVIDENCE FROM THE AIRLINE INDUSTRY*

I estimate the Internet's effect on the level and dispersion of airline fares on a given route within and across firms. The results suggest that increases in Internet penetration reduce average price and lead to higher intrafirm price dispersion, while increases in Internet penetration do not affect interfirm price dispersion on a given route. Internet penetration affects average fares most in competitive markets. These results suggest that the Internet has significantly but subtlely influenced domestic airline competition. The effect of the Internet on prices and price dispersion is larger on direct flights.     

Auction Platform Design and the Linkage Principle

This paper examines an auction platform in which the monopoly platform maximizes profits by adjusting participation fees and choosing an auction format. The seller has private information on the quality of the good, and each participating buyer receives a private signal about his valuation of the good. The choice of auction format determines the allocation of trading surplus between the seller and buyers. This paper shows that when the seller's type is affiliated with the buyers' signals, the platform can charge higher participation fees on both sides by choosing a first‐price or descending auction than a second‐price or ascending auction.     

Pricing behavior in United States manufacturing industries: A statistical study using disaggregated data

We investigate the relationship between industrial market structure and price flexibility (the administered-pricing hypothesis) across United States manufacturing industries by embedding market-structure variables in a model relating relative price variability (dispersion) and inflation. While we find support for a positive relationship between variability and inflation, we do not find that high seller concentration lessens the impact of inflation on price variability. We do find that the larger the efficient-sized plant, the lower the impact of inflation on variability. We also find strong effects of input prices and degree of product durability on relative price variability.     

Price Strategies for Idiosyncratic Goods—The Case of Housing

We determine the mechanism that a rational, profit-maximizing seller would use to revise his reservation price for a heterogeneous or infrequently exchanged good. For instance, while one dimension of a home's quality may be easily determined in competitive markets (e.g., the valuation of floor size, location, etc.), other dimensions of quality may be idiosyncratic (unit specific) and unobservable by the seller (e.g., aesthetics of the home). Here, a seller of a new or infrequently exchanged housing unit may use sales success information to revise his expectation of the unit's market-determined value and hence revise his reservation price. The rational seller will, upon arrival of the first buyer inspecting the unit, determine a sequence of reservation prices for this and expected subsequent buyers. This price sequence falls for subsequent buyers and starts from a lower initial price if the first buyer arrives later than expected. Through this mechanism, we offer an explanation for price dispersion and vacancy durations in housing markets. While we explicitly model the real estate market here, this price revision mechanism is also applicable to rental markets, labor markets, used car markets, and other markets characterized by heterogeneity and infrequent sales.     

A Dynamic Model of Auctions with Buy‐It‐Now: Theory and Evidence

In the ascending‐price auctions with Yahoo!‐type buy‐it‐now (BIN), we characterize and derive the closed‐form solution for the optimal bidding strategy of the bidders and the optimal BIN price of the seller when they are both risk‐averse. The seller is shown to be strictly better off with the BIN option, while the bidders are better off only when their valuation is high enough. The theory also implies that the expected transaction price is higher in an auction with an optimal BIN price than one without a BIN option. This prediction is confirmed by our data collected from Taiwan's Yahoo! auctions.     

Anti‐Competitive Interconnection: the effects of the elasticity of consumers' expectations and the shape of the network effects function

I find that interconnection might cause the market to be less competitive, and might lead to an increase in the price firms charge for their product. Absent interconnection, firms compete for a consumer for two reasons. The first reason is to obtain revenue from selling the product to a consumer (as in the case without network effects). The second reason is that by expanding the network by one more consumer, the product becomes more attractive to all other consumers. Interconnection eliminates the second reason—when firms interconnect, they are no longer concerned with consumers' following the crowd. I show that consumers and society might be worse off from interconnection. I focus on two factors that make the (post‐interconnection) price increase larger: consumer expectations that are highly sensitive to prices and consumers putting a high value on small increases in network size at the equilibrium market shares. Both of these factors make firms highly competitive, but only if the firms' products' networks are not interconnected.     

How buyer–seller relationship orientation affects adaptation of sales processes to the buying process

Adaptation in sales is common in business relationships. The purpose of this study is to understand how the buyer–seller relationship affects sellers' sales process adaptation to customers' buying processes. The results reveal how the buyer–seller relationship orientation affects sales process adaptation and its effects. The main sources of information in this qualitative inquiry are in-depth, semi-structured interviews with key informants representing a buyer–seller relationship. This study helps to shed light on how the buyer–seller relationship orientation affects sales process adaptation. The findings reveal that both the buyer and the seller have an impact on sales process adaptation. Extant research has recognized adaptation as a central aspect in relationships, while largely neglecting sales process adaptation. Thus, this study focuses on the effects of buyer–seller relationship orientation on sales process adaptation.     

Relationship quality as a resource to build industrial brand equity when products are uncertain and future-based

This article extends our understanding of industrial branding and the influence of buyer–seller relationships by examining key constructs within an industrial context where products are uncertain and future-based. SEM results elicited from 249 buyer surveys empirically validate satisfaction, trust and commitment as dimensions of relationship quality, and show that buyer–seller relationship quality facilitates direct and indirect seller brand equity accruals. Findings reveal that while focusing on sellers' corporate and product brands is good advice for building buyer–seller relationships, seller resource allocations to these areas should vary depending upon the selected target market segment(s). Findings support that sellers should place more focus on developing quality relationships with buyers than they should in focusing on the non-relational attributes of their corporate brands; however, if sellers choose to bypass building high quality customer relationships, they should instead funnel resources into their product brand offerings. Findings demonstrate that buyers credit their own skills and acumen when evaluating products with which they are confident, and ascribe increased value to the involvement of the seller as their attitude and certainty decrease. These findings provide strategic guidance to the sellers of uncertain and future-based industrial products.     

THE VALUE OF PRIVATE INFORMATION IN MONOPOLY*

We investigate a basic question about a monopoly with incomplete information: when does the seller have an incentive to allow potential buyers to acquire more private information about their tastes for the seller's product? Under plausible conditions such as log‐concave density of willingness‐to‐pay and convex marginal cost, the seller prefers that the paying customers be well informed as a group but be left in the dark regarding their individual tastes.     

Information Unraveling Revisited: Disclosure of Horizontal Attributes

This paper analyzes in a spatial framework how much information a seller discloses about the variety he sells when he faces a buyer with a privately known taste for variety. I identify an equilibrium in which, for each possible variety, the seller's optimal strategy consists of either fully disclosing the variety or disclosing how far it is from the buyer's expected taste. The set of varieties the seller fully discloses monotonically expands as the buyer's taste for variety becomes stronger. I show that this is the unique undefeated equilibrium. From a policy perspective, mandating full disclosure is socially harmful.     

The Determinants of Seller‐Buyer Interactions during New Product Development in Technology‐Based Industrial Markets

A growing body of literature indicates that the new product development (NPD) process in technology‐based, industrial markets is characterized by collaborative seller‐buyer relationships. Unfortunately, the extant literature is deficient in some significant ways. For example, there is no theoretical framework that explicates the content of these relationships. Also, there is little empirical research on the antecedents or consequences of these relationships. Therefore, managers seeking guidance on how to manage their NPD relationships have lacked appropriate insights. Not surprisingly, ineffective relationship management is a major contributor to new product failure in such settings. Against this background, this study develops and tests a model of seller‐buyer interactions during NPD. The model is based on the relationship marketing literature and is rooted in Transaction Cost Analysis (TCA). It was tested using data from 296 small to mid‐sized firms in a variety of technology‐based, industrial markets. It specifies product co‐development, education, and post‐installation product knowledge generation as three key behavioral dimensions that characterize seller‐buyer interactions during NPD. Our results indicate that the intensity with which these dimensions are undertaken vary with buyer‐related (i.e., perceived buyer knowledge and prior relationship history) and innovation‐related (i.e., product customization and innovation discontinuity) characteristics. For example, perceived buyer knowledge has a positive impact on product co‐development while innovation discontinuity has a positive impact on education. Further, we find that a seller's satisfaction with undertaking these behaviors is moderated by the technological uncertainty in the seller's industry. As a case in point, satisfaction with undertaking product co‐development is reduced when technological uncertainty is high. Collectively, the overall support we find for our model can help NPD managers optimize their relationships with buyers during NPD.     

Information disclosure in optimal auctions

This paper analyzes a situation in which the seller controls the accuracy of what potential buyers learn about their valuation of a good to be sold. This setting is related to many real situations such as home sales, antique auctions, and digital platforms such as Google and Facebook selling online advertising slots. Two important questions arise: what is the optimal selling mechanism, and what is the optimal disclosure policy of the seller. Under the assumption of private values, a simple auction with a reserve price is the optimal mechanism. What we show is that the amount of (costly) information provided increases with the number of potential bidders when using the optimal mechanism and is greater than when the object is always sold. Because information changes the distribution of a bidder’s expected valuations, the optimal reserve price also changes, so that the number of bidders (indirectly) affects the reserve price. We show that as the number of bidders increases, the optimal reserve price becomes more restrictive.