Consumer Choice Modelling in Product Line Pricing: Reservation Prices and Discrete Choice Theory

Stefan Mayer () and Jochen Gönsch ()
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Stefan Mayer: University of Augsburg
Jochen Gönsch: University of Augsburg

A chapter in Operations Research Proceedings 2011, 2012, pp 547-552 from Springer

Abstract: Abstract In the literature on product line pricing, consumer choice is often modelled using the max-surplus choice rule. In terms of this concept, consumer preferences are represented by so-called reservation prices and the deterministic decision rule is to choose the product that provides the highest positive surplus. However, the distribution of the reservation prices often seems somewhat arbitrary. In this paper, we demonstrate how reservation prices can be obtained using discrete choice analysis and that these two concepts are not as different as often perceived in the literature. A small example illustrates this approach, using data from a discrete choice model taken from the literature.

Keywords: Discrete Choice; Reservation Price; Choice Probability; Discrete Choice Model; Participation Constraint (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:spr:oprchp:978-3-642-29210-1_87

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DOI: 10.1007/978-3-642-29210-1_87

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