Two Essays On Dynamic Optimal Pricing
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Two Essays On Dynamic Optimal Pricing
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Author : Gong Lee
language : en
Publisher:
Release Date : 2019
Two Essays On Dynamic Optimal Pricing written by Gong Lee and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with Economics categories.
In the second chapter, I consider the static model in hotel market to see whether it is possible to identify consumer preferences and arrivals when assumptions a) optimality, and b) equilibrium are relaxed. We establish the global, non-parametric identification of preferences and consumer arrival probabilities in a simplified static setting but show via examples that the identification of unobserved types of consumers is very challenging, in contrast to the more optimistic conclusions from theoretical analyses that prove that the random coefficient logit model (which is a component of our overall model of demand) is non-parametrically identifeed.
Essays In Dynamic Pricing Of Multiple Substitutable Products
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Author : Sajjad Najafi
language : en
Publisher:
Release Date : 2016
Essays In Dynamic Pricing Of Multiple Substitutable Products written by Sajjad Najafi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
I study the dynamic pricing problem of a firm selling limited inventory of multiple differentiated products over a finite planning horizon, where the firm wishes to maximize the expected revenue. I formulate the firm's optimization problem as a Markov decision process and investigate the pricing problem in the presence of a variety of operational settings. First, I integrate consumer's sequential search behavior into the pricing problem. The consumer inspects products one at a time by incurring non-zero search cost, and makes decision by comparing the utility of the best product so far versus the reservation utility, a threshold at which the consumer is indifferent between continuation and stopping of the sequential search. The firm aims at maximizing the expected revenue by offering the products in the right sequence and at the right prices. I analytically derive the optimal prices in each period. I show that under some condition it is optimal to present products in the descending order of quality. Second, I address a problem in which the firm is subject to a set of sales volume constraints required to be satisfied at different time points along the sales horizon. Due to stochastic nature of sales, I incorporate a risk measure that allows the firm to manage the total sales while the expected revenue is maximized. I formulate the problem as a chance-constrained dynamic programming and show that the Karush-Kuhn-Tucker conditions are not only necessary but also sufficient for the optimal price. Third, I assimilate consumer's consideration sets to the dynamic pricing problem. When to make a purchase decision, consumers use a two-stage decision-making process, i.e., consumers constitute a consideration set including a subset of the available products using a screening rule (e.g., brands, quality, and budget), and they only evaluate the products in the consideration set using a utility comparison process and opt for the product with the maximum utility. I show that the first-order condition is sufficient for the optimal price of products if consumers apply a quality-based screening rule.
Essays On Price Dispersion And Dynamic Pricing
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Author : Ching-jen Sun
language : en
Publisher:
Release Date : 2008
Essays On Price Dispersion And Dynamic Pricing written by Ching-jen Sun and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Prices categories.
Abstract: This dissertation develops three essays on dynamic pricing to investigate two important topics in industrial organization: price dispersion and price discrimination. The first essay considers a stylized model of dynamic price competition in which each seller sells one unit of a homogeneous commodity by posting prices in every period to maximize the expected profits with discounting. A random number of buyers come to the market in each period. Each buyer demands at most one unit of the good, and they all have a common reservation price. They know all prices posted by all firms in the market; hence search is costless. I show that when there is a positive probability of excess demand, the model has a unique (symmetric) mixed-strategy equilibrium. In this equilibrium, each seller posts a price in every period according to a non-degenerate distribution, which is determined by the number of sellers remaining in the market in that period. Sellers play mixed strategies as they are indifferent between selling sooner at a lower price and waiting to sell at a higher price later. Thus, price dispersion not only exists in every period among firms, but also persists over time. In the second essay, I consider a monopolist who can sell vertically differentiated products over two periods to heterogeneous consumers. Consumers each demand one unit of the product in each period. In the second period, consumers are sorted into different segments according to their first-period choice, and the monopolist can offer different menus of contracts to different segments. In this way, the monopolist can price discriminate consumers not only by product quality, but also by purchase history. I fully characterize the monopolist's optimal pricing strategy when the type space is discrete and a simple condition is given to determine whether the monopolist should price discriminate consumers by product quality in the first period. When the consumers' type space is a continuum, I show that there is no fully separating equilibrium, and some properties of the optimal menu of contracts (price-quality pairs) are characterized within the class of partition PBE (Perfect Bayesian Equilibrium). The monopolist will offer only one quality in the first period when the social surplus function is log submodular or the firm and consumers are patient. If it is optimal for the firm to offer only one quality in the first period, the optimal market coverage in the first period is smaller than that in the static model. Furthermore, in equilibrium there are some high-type consumers choosing to downgrade the product in the second period, a phenomenon that has never been addressed in the literature. In the second essay, when the consumers' type space is a continuum, the analysis of the optimal menu of contracts is restricted within the class of partition PBE. The third essay provides a justification for this qualification. I ask whether an optimal menu of contracts can induce a non-partition continuation equilibrium by scrutinizing the example constructed by Laffont and Tirole (1988). They construct a non-partition continuation equilibrium for a given first-period menu of incentive contracts and conjecture that this continuation equilibrium need not be suboptimal for the whole game under small uncertainty. I construct two first-period incentive schemes leading to a partition continuation equilibrium and show that, regardless of the extent of uncertainty, their non-partition continuation equilibrium generates a smaller payoff than one of two partition continuation equilibria for the principal. In this sense, Laffont and Tirole's menu of contracts, giving rise to a non-partition continuation equilibrium, is not optimal. I provide an intuition behind this result, hoping to shed light on the problem of dynamic contracting without commitment.
Optimal Pricing Inflation And The Cost Of Price Adjustment
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Author : Eytan Sheshinski
language : en
Publisher: MIT Press
Release Date : 1993
Optimal Pricing Inflation And The Cost Of Price Adjustment written by Eytan Sheshinski and has been published by MIT Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993 with Business & Economics categories.
These collected articles constitute what is perhaps the definitive study of pricing models under inflation, providing a solid basis for further research on this elusive question. What are the real effects of inflation? These collected articles constitute what is perhaps the definitive study of pricing models under inflation, providing a solid basis for further research on this elusive question. Covering a broad range of theory and applications by well-known microeconomists, the eighteen contributions evaluate the effects of inflation on aggregate output and on welfare and reveal the scope of recent efforts to explicitly incorporate frictions in economic models. A basic building block common to most of the essays in this volume is the observation that individual firms change nominal prices intermittently. The frequency and size of nominal price changes are influenced by the cost of price adjustment and changes in the economic environment, production costs, market demand, market structure, and most important, inflation. Thus the degree of nominal rigidity is influenced by the economic environment, and in a dynamic context. Two introductory essays survey the empirical studies of pricing policies by individual firms and the theoretical efforts to integrate the nominal rigidities at the micro level into macro relationships. The essays that follow treat the general problem of optimal dynamic adjustment in the presence of convex costs of adjustment, include applications of the inventory models to the case of nominal price adjustment by an individual firm, address the question of aggregation, introduce active search by consumers, and provide empirical analysis of nominal price rigidities.
Essays On Economics And Marketing
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Author : Yu-Hung Chen (Economics scholar)
language : en
Publisher:
Release Date : 2016
Essays On Economics And Marketing written by Yu-Hung Chen (Economics scholar) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with Electronic dissertations categories.
Chapter 1: Dynamic Pricing and Price Commitment of New Experience Goods An important problem for a firm selling new experience goods is how to credibly signal its high quality. This chapter develops a dynamic model to examine how a firm with a non-durable experience good can signal its quality with dynamic spot-pricing or future-price commitment. I find that when consumers do not believe the firms price commitment to be credible, the high-quality firms most profitable equilibrium outcome is to pool in the first period and separate in the second period. In contrast, when price commitment is credible, the high-quality firm may signal its quality with either a lower-than-first-best first-period price or a higher-than-first-best second-period price. Credible price commitment will benefit the high-quality firm by lowering its signaling cost and hurt the low-quality firm, but can either increase or decrease consumer surplus and social welfare depending on the quality difference between the two types of firms. Chapter 2: Dynamic Pricing of Experience Goods in Markets with Demand Uncertainty This chapter studies a firms optimal dynamic pricing strategies for its experience goods in markets, where the distribution of consumers valuations is ex ante unknown. I find several interesting findings. First, a high-quality firm can signal its quality with either a skimming-pricing strategy or a penetration-pricing strategy in the early period. Second, though a firm with higher quality benefits more from learning market demand, in equilibrium the low-quality firm not the high-quality firm will learn demand if consumers have very different willingness to pay. Third, although consumers have higher willingness to pay for the high-quality product, in the first period the high-quality firm may actually charge a lower price than the low-quality firm. Lastly, the firm may earn higher profits when its initial pricing decision is made under demand uncertainty than under no demand uncertainty. The underlying reason is that the presence of demand uncertainty can sufficiently lower the high-quality firms signaling cost, allowing it to make higher profits by setting future prices based on its high quality. Chapter 3: Who Benefits from Big Data Collected by In-Vehicle Data Recorders? The car insurance market is plagued with problems of adverse selection and moral hazard. In-vehicle data recorders can collect massive amount of information (or "big data") about the drivers risk factors and driving behaviors. This monitoring technology allows the firm to set its insurance premium based on better estimates of the drivers risk factors, alleviating the adverse selection problem. In addition, the firm can charge a premium based on the customers recorded driving behaviors; this helps to reduce the drivers moral hazard. I provide an analytical framework to examine the impact of such monitoring technology on the insurance firms and the consumers. My analysis shows that in a duopoly one firms adoption of the monitoring technology may benefit both firms because of the less severe competition in the market. Finally, I show that if one firm has adopted the monitoring technology, its competitor may have no incentive to adopt that technology even if it is free.
Essays On Economics Of Information
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Author : Anastasiia Parakhoniak
language : en
Publisher:
Release Date : 2018
Essays On Economics Of Information written by Anastasiia Parakhoniak and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
This thesis consists of three independent chapters addressing different questions of information economics. The first chapter studies optimal strategies of firms which are present in both offline and online markets. We study optimal pricing strategies of retailers in presence of showrooming and their decisions on distribution channels. Showrooming is a situation where consumers try products at brick-and-mortar stores before purchasing them online at a lower price. One way to prevent showrooming is to use a price matching policy, whereby price is the same in both the physical store and the online channel. We show that for small search costs, a price matching policy is indeed optimal. However for higher search costs price matching is suboptimal, and online and offline purchases coexist with showrooming. A firm which faces online competition from a foreign multichannel retailer has an incentive to geo-block, i.e. refuse to serve foreign customers, even though it leads to a decrease in potential demand. Geo-blocking relaxes online competition and leads to higher prices both online and in brick-and-mortar stores. A legal price parity requirement helps to eliminate incentives to geo-block and thus restores online competition. The second chapter analyzes information diffusion process in communication networks where social interactions are costly. We provide a dynamic model with strategic agents who decide how much effort to put into the propagation of information about a product in each period. We show that the equilibrium level of the individual communication effort is convex in the proportion of informed agents, and lower than the socially optimal level due to the substantial free-riding effect. We show that for sufficiently high recommendation cost it is socially optimal that symmetric agents exert the same communication effort while for low recommendation cost this is not true. In the context of our model we analyze the advertising strategy of the firm launching a new product with positive network externalities for consumers. The analysis shows that the outcome of advertisement is decreasing fast with the proportion of informed consumers due to the free-riding effect. Thus, optimally the firm has to adjust and reduce the level of advertising in each period. The third chapter is a co-authored paper with Maarten Janssen and Alexei Parakhonyak. In this paper we propose a new equilibrium concept of Non-reservation price equilibria (Non-RPE). Reservation price equilibria (RPE) do not accurately assess market power in consumer search markets. In most search markets, consumers do not know important elements of the environment in which they search (such as, for example, firms' cost). We argue that when consumers learn when searching, RPE suffer from theoretical issues, such as non-existence and critical dependence on specific out-of-equilibrium beliefs. We characterize equilibria where consumers rationally choose search strategies that are not characterized by a reservation price. Non-RPE always exist and do not depend on specific out-of-equilibrium beliefs. Non-RPE have active consumer search and are consistent with recent empirical findings.
Three Essays On Dynamic Pricing And Resource Allocation
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Author : Cavdaroglu Nur
language : en
Publisher:
Release Date : 2012
Three Essays On Dynamic Pricing And Resource Allocation written by Cavdaroglu Nur and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
We review the dynamic programming formulation of the negotiation problem, and propose a simple and tractable deterministic "fluid" analogue for this problem. The main emphasis of the chapter is in expanding the formulation to the dynamic setting where both the buyer and seller have limited prior information on their counterparty valuation and their negotiation skill. In Chapter 4, we consider the revenue maximization problem of a seller who operates in a market where there are two types of customers; namely the "investors" and "regular-buyers". In a two-period setting, we model and solve the pricing game between the seller and the investors in the latter period, and based on the solution of this game, we analyze the revenue maximization problem of the seller in the former period. Moreover, we study the effects on the total system profits when the seller and the investors cooperate through a contracting mechanism rather than competing with each other; and explore the contracting opportunities that lead to higher profits for both agents.
Essays On Dynamic Contracting
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Author : Ilia Krasikov
language : en
Publisher:
Release Date : 2019
Essays On Dynamic Contracting written by Ilia Krasikov and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
The thesis focuses on understanding the dynamic nature of contracts used in various economic context, specifically financial economics and industrial organization. The first chapter "A Theory of Dynamic Contracting with Financial Constraints'' draws on a large empirical literature documenting that small businesses are financially constrained, and operate at an inefficient level. In the paper, we build a theoretical model where financial constraints arise endogenously as a product of interaction between persistent agency frictions and agent's inability to raise external capital.The paper makes two general points. First, efficiency is a certainty in the long run, and it is achieved through monotone slacking of financial constraints. Second, persistence makes the path towards efficiency much more constrained in comparison to the model with the iid technology. In particular, we show that dynamic agency models with persistence predict a larger cross section of firms in the economy to be financially constrained.At a technical level, we invoke the recursive approach of \citet{aps}, using a two-dimensional vector of promised utilities as a state variable. We show that the optimal contract always stays in a strict subset of the recursive domain termed the shell, and the optimal contract is monotone within this set. We also verify that the results continue to hold in continuous time.The second chapter "Dynamic Contracts with Unequal Discounting'' looks at dynamic screening with soft financial constraints. In contrast to the first paper, the agent can raise money but at a different rate than the principal.We solve for the optimal contract and show that efficiency is not attainable with soft financial constraints. Therefore, the predictions of dynamic models of mechanism design are not robust to the assumption of equal discounting. For the large set of parameters, the optimal contract has the restart property- dynamic distortions are a function of the number of consecutive bad shocks, and once the good shock arrives the process repeats again. We also show that restricting attention to contracts which have the restart property is in general approximately optimal. The endogenous resetting aspect of restart contracts shares features of various contracts used in practice.In the third chapter "On Dynamic Pricing'', we explore dynamic price discrimination, extending a canonical model of monopolistic screening to repeated sales, where a seller uses timing of purchases as a screening instrument. The importance of time as an instrument for price discrimination has been understood since Varian [1989].In the paper, we are aiming to provide a formal analysis of pricing strategies to discriminate amongst consumers based on the timing of information arrival and/or the timing of purchase.A seller repeatedly trades with a buyer. Buyer's valuations for the trade follow a renewal process; that is, they change infrequently at random dates. For the model with two periods, We show that selling the first period good for a spot price and selling the second period good by optioning a sequence of forwards is the optimal pricing strategy. Specifically, at the outset, the seller offers an American option which can be exercised in each of the two periods. Exercising the option grants the buyer with a forward- an obligation to purchase the second period good for a specific price, and a strike price- a right to buy (or not) the good in the second period after learning his value. The buyer with a high valuation exercises the option in the first period, whereas one with a low valuation waits until the second period and then takes a call.We extend the analysis to the general continuous time renewal processes and assess the performance of price discrimination based on American options on forwards:i.optioning forwards is shown to be the deterministic optimum for the sequential screening problem- when the seller makes a sale in a single fixed period;ii.optioning forwards is shown to be the exact optimum for the repeated sales problem in the restricted class of strongly monotone contracts- when allocative distortions are monotone in a whole vector of buyer's valuations;iii.the optimum for the repeated sales problem in the unrestricted class of contracts is shown to be backloaded and a theoretical bound is provided for the fraction of optimal revenue that can be extracted by optioning forwards.Finally, the construction of dynamic pricing mechanism and bounds is ported to study repeated auctions.
Three Essays On Dynamic Models With Applications In Marketing And Finance
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Author : Shantanu Mullick
language : en
Publisher:
Release Date : 2016
Three Essays On Dynamic Models With Applications In Marketing And Finance written by Shantanu Mullick and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This dissertation consists of three chapters that present three standalone essays on the application of dynamic models to marketing and finance. The first essay uses a structural approach to dynamic models to study the role of income on the impact of fat taxes. The second and third essays use a reduced form approach to dynamic models: we use dynamic hierarchical models which incorporate a Hierarchical Bayesian framework in a Dynamic Linear Model. The second essay studies the dynamic pricing of seasonal goods with the help of a flexible dynamic hierarchical model. The third essay studies the cost of trade finance during the financial crisis of 2008-2009 using a dynamic hierarchical model. In the first essay, we use a dynamic structural model to investigate how income interacts with the impact of a “fat tax” (a tax on snack food). We find that the low-income group is less impacted by a “fat tax” compared to the higher income group as they have a higher tendency to consume snack food. In the second essay, we develop a flexible dynamic hierarchical model to estimate the trajectory of price sensitivities which allows us to infer the dynamic prices of seasonal goods. We find that optimal prices depend on the customer composition of the store, and seasonal goods retailers can take advantage of this while setting prices. In the third essay, using a dynamic hierarchical model we examine the impact of four macroeconomic indicators on trade finance costs in and around the financial crisis of 2008-2009. We find the impact of three of these macroeconomic factors (GDP growth, trade and inflation) on trade finance to be in line with the theory, while the impact of the fourth factor (stock market capitalization) on trade finance appears somewhat surprising.
Essays In Market Design
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Author : Pallavi Pal
language : en
Publisher:
Release Date : 2020
Essays In Market Design written by Pallavi Pal and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with Electronic dissertations categories.
Chapter 1: Quality Differentiation and Optimal Pricing Strategy in Multi-sided MarketsThis paper analyzes the generalized quality differentiation model in multi-sided markets with positive externalities, which leads to new insights into the optimal pricing structure of the firm. We find that quality differentiation for users on one side leads to a decrease in the price charged to users on the other side, thereby affecting the pricing structure of multi-sided firms. In addition, quality differentiation affects the strategic relationships among the choice variables for the platform, so that the platform strategically uses quality differentiation to raise its profits.Chapter 2: Dynamic Game with Multidimensional Type: The Case of Carbon-Credit MarketA significant problem with the carbon credit market that has become apparent in recent years is that the market price has been far more volatile than originally envisioned. The underlying problem is the ill-understood pricing anomalies in a repeated period dynamic setting. In this paper, we drive the equilibrium price path in a dynamic setting and suggests ways to overcome price instability. The model setup allows the firms to differ in terms of their value for the carbon credit as well as the urgency of obtaining it. For example, a firm with an early deadline for obtaining the carbon credits will have a higher demand urgency. We find that the equilibrium price is affected by future demand and supply expectations. The findings show that the cap or the supply limit for each period can be used to decrease price instability. Currently, the government or the carbon credit seller decides a per period limit on the supply, which decreases over time. However, this paper suggests that to curb price fluctuation the per period supply should be a function of expected future demand. We show that correlating supply rate with expected future demand leads to a more stable price.Chapter 3: Revenue-Maximizing Number of Ads per Page in the Presence of Market ExternalitiesFirms use advertising as a medium to gain a competitive advantage, which is negatively affected if the ad appears alongside their rival's ad---a form of externality. The multiple ad display setting on search engines, such as Google and Yahoo!, introduces such externalities in the market. In this paper, I estimate a structural model based on a novel data set of Yahoo! ads to (i) quantify the effect of externality on an advertiser's willingness to pay and (ii) simulate the revenue-maximizing number of ads for a search engine. First, I find that externality depends on the quality and quantity of competing ads. For example, an advertiser's willingness to pay decreases by 18.5 percent due to the addition of a second high-quality ad, but only by 0.15 percent due to the addition of a seventh low-quality ad. Second, the counterfactual results suggest that the revenue-maximizing number of ads per page differs across the ad product category, with the average being five ads per page, and implementing the suggested number of ads would lead to a 4.5 percent increase in revenue, on average. These results provide evidence in support of recent changes in the online advertising market; for example, Microsoft introduced a service called RAIS that provides advertisers with an option of an exclusive ad display.