Profitability of the Name-Your-Own-Price Channel in the Case of Risk-Averse Buyers

Shapiro, Dmitry

Profitability of the Name-Your-Own-Price Channel in the Case of Risk-Averse Buyers

Dmitry Shapiro ()
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Dmitry Shapiro: Belk College of Business, University of North Carolina Charlotte, Charlotte, North Carolina 28223

Marketing Science, 2011, vol. 30, issue 2, 290-304

Abstract: In this paper, I study profitability of the name-your-own-price channel (NYOP) in the presence of risk-averse buyers. First, I provide conditions that guarantee that for the monopolistic seller the NYOP is more profitable than the posted price. Second, I consider a more competitive framework where buyers with rejected bids have access to an alternative option. I show that if under the posted-price scenario there are unserved customers with low valuations, then NYOP is more profitable than the posted price. Finally, I study whether adding the posted-price option to the NYOP will further increase the seller's profit and show that for the decreasing absolute risk-aversion utility and a monopolistic seller it does not. In the presence of an alternative option, the answer depends on whether buyers consider the posted-price option and the alternative option to be close substitutes or not. Adding the posted-price option will increase the profit in the former case and will not in the latter.

Keywords: pricing; bidding; name-your-own-price; reverse auctions (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:30:y:2011:i:2:p:290-304

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