Approximation algorithms for product framing and pricing

Guillermo Gallego, Anran Li, Van-Anh Truong and Xinshang Wang

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We propose one of the first models of “product framing” and pricing. Product framing refers to the way consumer choice is influenced by how the products are framed or displayed. We present a model in which a set of products is displayed or framed into a set of virtual web pages. We assume that consumers consider only products in the top pages with different consumers willing to see different numbers of pages. Consumers select a product, if any, from these pages following a general choice model. We show that the product-framing problem is NP-hard. We derive algorithms with guaranteed performance relative to an optimal algorithm under reasonable assumptions. Our algorithms are fast and easy to implement. We also present structural results and design algorithms for pricing under framing effects for the multinomial logit model. We show that, for profit maximization problems, at optimality, products are displayed in descending order of their value gap and in ascending order of their markups.

Keywords: analysis of algorithms; choice models; marketing; pricing (search for similar items in EconPapers)
JEL-codes: J50 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2020-02-01
New Economics Papers: this item is included in nep-cmp, nep-com, nep-dcm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published in Operations Research, 1, February, 2020, 68(1), pp. 134 - 160. ISSN: 0030-364X

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:101983

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