H. Chen, Lisa E. Bolton, Sharon Ng, Dongwon Lee, Dian Wang
{"title":"Culture, Relationship Norm, and Dual Entitlement","authors":"H. Chen, Lisa E. Bolton, Sharon Ng, Dongwon Lee, Dian Wang","doi":"10.1093/JCR/UCX118","DOIUrl":"https://doi.org/10.1093/JCR/UCX118","url":null,"abstract":"According to the dual entitlement principle, consumers find it fair for firms to price asymmetrically to cost changes, that is, increasing prices when costs increase but maintaining prices when costs decrease. However, we conduct a meta-analysis revealing that asymmetric pricing is less prevalent in collectivistic (vs. individualistic) countries (study 1). We propose a fairness-based explanation, demonstrating that interdependent consumers in collectivistic cultures perceive asymmetric pricing to be less fair than do independent consumers in individualistic cultures (studies 2A-2C, 4 and 5). We attribute this cultural variation in the endorsement of dual entitlement to culture-specific relationship norms. Specifically, we argue that while the practice of asymmetric pricing is consistent with the exchange norms among independent consumers that emphasize self-interest pursuit, it is inconsistent with the communal norms among interdependent consumers mandating firm benevolence. Supporting this argument, we find that (a) directly manipulating communal (vs. exchange) norms yields similar differences in fairness perceptions that mimics those due to culture (studies 3 and follow-ups), (b) the cultural differences are mediated by the communal mandate for firm benevolence (study 4), and (c) the cultural differences are mitigated when a firm frames asymmetric pricing as benevolent (study 5). We conclude by discussing the theoretical and managerial implications of these findings for dual entitlement and asymmetric pricing, as well as for the role of culture in buyer-seller relationships and price fairness.","PeriodicalId":321987,"journal":{"name":"ERN: Pricing (Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-05-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134454514","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Price Determinism in Specialized Producing Economy","authors":"Yirui Wang","doi":"10.2139/ssrn.3501805","DOIUrl":"https://doi.org/10.2139/ssrn.3501805","url":null,"abstract":"In an economy with n kinds of products, producers are specialized to produce one kind of product and exchange for the others. Exchange matrix A consists of supplies and demands. Price vector p is the solution of Ap = 0.When R(A) = n – 1, the price is determined given total money amount. When R(A) = n – m, the economy can be divided into m sub-economies with no exchange of products between any two of them. In each sub-economy the price is determined.","PeriodicalId":321987,"journal":{"name":"ERN: Pricing (Topic)","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121049815","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Pricing of Complements in the U.S. Freight Railroads: Cournot Versus Coase","authors":"A. Alexandrov, R. Pittman, Olga Ukhaneva","doi":"10.2139/ssrn.3165072","DOIUrl":"https://doi.org/10.2139/ssrn.3165072","url":null,"abstract":"Monopolists selling complementary products charge a higher price in a static equilibrium than a single multiproduct monopolist would, reducing both the industry profits and consumer surplus. However, firms could instead reach a Pareto improvement by lowering prices to the single monopolist level. We analyze administrative nationally-representative pricing data of railroad coal shipping in the U.S. We compare a coal producer that needs to ship from A to C, with the route passing through B, in two cases: (1) the same railroad owning AB and BC and (2) different railroads owning AB and BC. We do not find that price in case (2) is higher than price in case (1), suggesting that the complementary monopolist pricing inefficiency is absent in this market. For our main analysis, we use a specification consistent with the previous literature; however, our findings are robust to propensity score blocking and machine learning algorithms. Finally, we perform a difference-in-differences analysis to gauge the impact of a merger that made two routes wholly-owned (switched from case 2 to case 1), and these results are also consistent with our main findings. Our results have implications for vertical mergers, tragedy of the anticommons, mergers of firms selling complements, and royalty stacking and patent thickets.","PeriodicalId":321987,"journal":{"name":"ERN: Pricing (Topic)","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125648557","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Impact of Price Anchoring on Consumers' Valuation of Digital Goods","authors":"Geneviève Bassellier, Jui Ramaprasad","doi":"10.2139/ssrn.3157629","DOIUrl":"https://doi.org/10.2139/ssrn.3157629","url":null,"abstract":"This study examines the role of reference prices as set by different sources in influencing users’ motivation to pay for digital goods. Prior research has shown that a firm can best capture the heterogeneous product valuations of buyers through the implementation of a flexible payment model such as Pay What You Want (PWYW). In the digital goods context, where a user may choose to not pay for a good at all (i.e. pay zero), the use of an external reference price can motivate payment by anchoring one’s decision about the price to pay. This study tests the influence of the source and the level of reference prices on consumers’ willingness to pay in a controlled lab experiment with 868 participants, in the context of purchasing digital songs. We report the results of ANOVA analysis, t-tests and regression analysis and show that a low (high) reference price leads to a lower (higher) willingness to pay than a user’s internal reference price. Interestingly, when the reference price is determined by the site — when it represents the site’s recommended price — it increases one’s willingness to pay as compared to when the price is determined by a social group — when it represents the price paid by other users. Moderation effects are also reported.","PeriodicalId":321987,"journal":{"name":"ERN: Pricing (Topic)","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130874081","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Dynamic Pricing with Point Redemption","authors":"Hakjin Chung, Hyun-Soo Ahn, So Yeon Chun","doi":"10.2139/ssrn.3143850","DOIUrl":"https://doi.org/10.2139/ssrn.3143850","url":null,"abstract":"Problem definition: Reward points function as a new currency that consumers can spend on products and services. We study how point redemption affects the seller’s day-to-day pricing and inventory decisions. Academic/practical relevance: Despite widespread use of point redemption, little has been done on its implication on the seller’s operational decisions. This paper extends the revenue management literature to incorporate the impact of point redemption and provides managerial insights on how the seller can factor point redemption into decisions about price and inventory. Methodology: We develop a choice model in which a consumer chooses to pay with cash or points based on the attributes of reservation price, point balance, and the perceived value of a point. We incorporate this choice model into a dynamic model where a seller adjusts the price along with redemption availability and the required point amount. Results: We show that the effect of point redemption on the seller’s price is nontrivial, as the optimal price tilts upward or downward to the reimbursement rate (the compensatory revenue for a reward sale) depending on the inventory level, time, and the reimbursement rate. Furthermore, such price adjustments can attenuate the optimal markup/markdown level, reducing the price fluctuation derived by a dynamic pricing policy in the absence of reward sales. We find that operationalizing reward sales with some discretionary policies (e.g., control over the reward availability or point requirement) can considerably increase the seller’s revenue. Managerial implications: Our results guide how sellers manage prices and inventory dynamically when consumers can redeem points for purchases. Specifically, we show that a seller can benefit from allowing reward sales even when the reimbursement rate is substantially lower than the cash price. Although the seller benefits from having full control over the required point balance, the greatest benefit can be realized via the control of reward availability.","PeriodicalId":321987,"journal":{"name":"ERN: Pricing (Topic)","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127395144","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Here Lives a Wealthy Man: Price Rigidity and Predictability in Luxury Housing Markets","authors":"Daniel Levy, Avichai Snir","doi":"10.2139/ssrn.3142656","DOIUrl":"https://doi.org/10.2139/ssrn.3142656","url":null,"abstract":"We use novel and unique data to study the effect of price changes in the market for luxury and middle class homes. We find that luxury home sales respond less to price changes than the middle-class home sales; in the market for luxury homes, past prices affect current prices; luxury home prices persist; and prices of luxury homes are stickier than prices of middle-class homes. Recent macroeconomic models predict that housing markets can have counter-cyclical effect, if home prices are flexible. Our findings imply that home prices, especially luxury home prices, may not be flexible enough to generate such effect.","PeriodicalId":321987,"journal":{"name":"ERN: Pricing (Topic)","volume":"90 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-02-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133491378","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Kanishka Misra, Eric M. Schwartz, Jacob D. Abernethy
{"title":"Dynamic Online Pricing with Incomplete Information Using Multi-Armed Bandit Experiments","authors":"Kanishka Misra, Eric M. Schwartz, Jacob D. Abernethy","doi":"10.2139/ssrn.2981814","DOIUrl":"https://doi.org/10.2139/ssrn.2981814","url":null,"abstract":"We propose an alternative dynamic price experimentation policy that extends multiarmed bandit (MAB) algorithms from statistical machine learning to include microeconomic choice theory.","PeriodicalId":321987,"journal":{"name":"ERN: Pricing (Topic)","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-02-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131095005","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Natural Instability of Equilibrium Prices","authors":"Dmitry V. Levando, Maxim Sakharov","doi":"10.2139/ssrn.3100363","DOIUrl":"https://doi.org/10.2139/ssrn.3100363","url":null,"abstract":"We develop a theory of market fluctuations caused by strategic trade with complete information and without outside shocks. The constructed general equilibrium duopoly is a strategic market game with infinite strategies and multiple mixed strategies equilibria. First order conditions (FOC) of the game are the ill-posed problems (Hadamard, 1909), but every equilibrium mixed strategy can be only approximated. This imposes restrictions on convergence of common beliefs of players about actions of each other, existence of rational expectations and a price discovery property of the market, although the market is informationally efficient (Fama, 1970). We suggest a modification of Tikhonov regularization to construct pseudo-solutions. All endogenous variables of the model are exposed to unremovable instabilities, ‘natural instabilities’, specific to parameters of a chosen approximation. Our result is also related to existence of common knowledge, sun-spot equilibrium, and noise trade.","PeriodicalId":321987,"journal":{"name":"ERN: Pricing (Topic)","volume":"74 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-01-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128688506","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Competition with Targeted Product Design: Price, Variety, and Welfare","authors":"Miguel González-Maestre, Lluís M. Granero","doi":"10.2139/ssrn.2458856","DOIUrl":"https://doi.org/10.2139/ssrn.2458856","url":null,"abstract":"We consider the price and welfare effects of competition in targeted product design, in the context of the Salop circle model. Changes in product design lead to demand rotations that set the stage for our analysis. With an exogenous number of firms, we show that the degree of targeted product design tends to increase with the number of firms. Moreover, under reasonable conditions, price-increasing competition takes place, for intermediate levels of the number of firms. This effect is associated with the possibility of lower consumer welfare. With endogenous firm entry, an interesting insight from our analysis is that in some situations an increase in market size or a technological progress that reduces entry costs both might reduce consumers’ welfare.","PeriodicalId":321987,"journal":{"name":"ERN: Pricing (Topic)","volume":"105 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116462685","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Two-Sided Centrality and Optimal Pricing of Two-Sided Platforms","authors":"Yifei Zhang","doi":"10.2139/ssrn.3135648","DOIUrl":"https://doi.org/10.2139/ssrn.3135648","url":null,"abstract":"We develop a two-sided centrality concept to measure the cross network externalities, and build this new concept into a monopolistic two-sided platform model. Two-sided centrality can be employed in characterizing the behaviors of marginal end-users. In this setting, the platform will take into account not only the end-users’ quantities but also the end-users’ heterogeneities in its optimal price setting.","PeriodicalId":321987,"journal":{"name":"ERN: Pricing (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130384445","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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