Selling through Priceline? On the impact of name-your-own-price in competitive market

Xiao Huang, Greys Sošić and Gregory Kersten

IISE Transactions, 2017, vol. 49, issue 3, 304-319

Abstract: Priceline.com patented the innovative pricing strategy, Name-Your-Own-Price (NYOP), that sells opaque products through customer-driven pricing. In this article, we study how competitive sellers with substitutable, non-replenishable goods may sell their products (i) as regular goods, through a direct channel at posted prices, and possibly at the same time (ii) as opaque goods, through a third-party channel that engages in NYOP. We establish a stylized model framework that incorporates three sets of stakeholders: two competing sellers, an intermediary NYOP firm, and a sequence of customers. We first characterize customers’ optimal purchasing/bidding decisions under various channel structures and then analyze corresponding sellers’ dynamic pricing equilibrium. We conduct extensive numerical studies to illustrate the impact of inventory and time on equilibrium prices, expected profit, and channel strategies. We find that the implications are highly dependent on channel structure (dual versus single). In particular, more inventory may reduce one’s expected profit under the dual structure, whereas this never happens when a seller only uses the direct channel. Interestingly, although competing sellers seldom benefit from the existence of NYOP channels, it is possible that one or both of the sellers adopt it in equilibrium. We identify timing, inventory levels, and channel opaqueness as key drivers for NYOP adoption and characterize equilibrium areas for each type of channel structure.

Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/10.1080/0740817X.2016.1237060 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:uiiexx:v:49:y:2017:i:3:p:304-319

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uiie20

DOI: 10.1080/0740817X.2016.1237060

Access Statistics for this article

IISE Transactions is currently edited by Jianjun Shi

More articles in IISE Transactions from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().