Posted price and name-your-own-price in a product line design problem |
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| Institution: | 1. Sauder School of Business, University of British Columbia (UBC), Vancouver, British Columbia, V6T 1Z2, Canada;2. Rowe School of Business, Dalhousie University, Halifax, NS, B3H 4R2, Canada;1. Stephen F. Austin State University, United States;2. University of Kentucky, United States;3. The Pennsylvania State University Abington, United States;1. School of Industrial Engineering, College of Engineering, University of Tehran, Iran;2. School of Business and Economics, RWTH Aachen University, Aachen, Germany;3. Centre for Research in Sustainable Supply Chain Analytics, Rowe School of Business, Dalhousie University, Halifax, NS, Canada;1. Korea National Industrial Convergence Center, Korea Institute of Industrial Technology, Republic of Korea;2. Department of Management Information Systems, Dong-A University, Republic of Korea;3. Department of Interaction Science, Sungkyunkwan University, Republic of Korea;4. Department of Human-Artificial Intelligence Interaction, Sungkyunkwan University, Republic of Korea;1. IQS School of Management, Universitat Ramon Llull, Via Augusta, 390, 08017, Barcelona, Spain;2. Tecnológico de Monterrey, Avenida General Ramón Corona 2514, Nuevo México, 45138, Zapopan, JAL, Mexico |
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| Abstract: | In this research, we address Name your own price (NYOP) as a mechanism to offer products with transparent, rather than opaque, quality levels. We compare posted price (PP) and NYOP in a product line design problem from a firm’s viewpoint. We first consider the firm offering two vertically differentiated products that each can be priced by NYOP or PP. The quality level of products is considered either as a decision variable or as a fixed predetermined value for the firm. A customer correspondingly decides which product to purchase and if applicable, the bid at NYOP. We characterize both the customer’s and the firm’s decisions under four possible pricing scenarios. The results show that, it is most profitable for the firm to use PP for both products. We then consider if each product is offered by a competitive firm, where quality levels might again be decision variables or fixed. Results show that both competitive firms prefer PP to NYOP when they can create quality differentiation. The firm that offers the product with a lower quality level prefers PP to NYOP for all combinations of fixed quality levels as well. The other firm, with a higher quality level, also usually prefers PP to NYOP; However, it can be better off using NYOP when fixed quality levels are large and close enough to each other. In this case, the preference of NYOP over PP increases as customers’ willingness to pay enhances. |
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| Keywords: | Product line design Posted-price Name-your-own-price Vertical differentiation Quality cost |
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