Optimal pricing strategies for a cluster of goods: own- and cross-price effects with correlated tastes

Juan Rosas (), Santiago Acerenza and Peter Orazem

No 119, Documentos de Investigación from Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales

Abstract: Contingent valuation methods are used to identify observed and unobserved preferences of goods and services. We apply these methods, in the context of multivariate probit analysis, to compute willingness to pay for each product of a cluster of goods conditional on having purchased another offered good of the cluster. We also provide a derivation of compensated cross-price elasticities based on unobservable factors, proving to be convenient in situations where cross-prices are not part of the demand equations. As goods belonging to a cluster are typically complements or substitutes, their pricing strategy should consider all offered goods simultaneously rather than individually. Therefore, we solve for the set of optimal prices of a social planner whose objective function weights both the producer’s revenues and the consumer’s joint latent utility. We show an application to collegiate sports events, but these methods can be extended in a straightforward fashion to other goods and services. Supplementary materials for this article are available online

Keywords: willingness to pay; reservation price; cluster of goods; multi-variate probit analysis; optimal pricing policy; unobserved taste; compensated cross price elasticities; bundling; sports tickets. (search for similar items in EconPapers)
JEL-codes: C30 C35 C40 D12 D40 D60 Z20 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2019-01
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Related works:
Journal Article: Optimal pricing strategies for a cluster of goods: own- and cross-price effects with correlated tastes (2020)
Working Paper: Optimal pricing strategies for a cluster of goods: own- and cross-price effects with correlated tastes (2020)
Working Paper: Optimal pricing strategies for a cluster of goods: Own- and cross-price effects with correlated tastes (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:avs:wpaper:119

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