Customer-driven pricing mechanisms in revenue management

• Applicants: Professor Dr. Klaus Schmidt; Professor Dr. Martin Spann
• Subject Area: Economic Policy, Applied Economics
• Term: from 2012 to 2016
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 219674449

Customer-driven pricing mechanisms give buyers influence on the price they pay. They have been used in revenue management to fill excess capacity. Examples are auction-type mechanisms such as Name-Your-Own-Price auctions, where customers bid against a secret reserve price set by the seller. Sellers thus preserve some control over the final price. However, even if sellers delegate all pricing power to buyers (“Pay-What-You-Want”), buyers may not exploit this power due to social preferences and strategic considerations. Thus, sellers may win new customers and gain net contribution by such mechanisms.The goal of this project is to analyze the determinants of buyer and seller behavior in customer-driven pricing mechanisms. The project considers customer-driven pricing mechanisms that delegate all pricing power to the buyer (social pricing mechanisms), as well as pricing mechanisms where sellers can exert some influence, e.g., via a secret reserve price. The project will experimentally and theoretically analyze how buyer and seller behavior is causally affected by different factors such as valuations, costs, market structure and social preferences. The project will thus delineate the importance and effects of seller, buyer and market characteristics for customer-driven pricing in revenue management and enable implications for the optimal design of such mechanisms.

• DFG Programme: Research Grants