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

Juan Rosas (), Santiago Acerenza and Peter Orazem

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Contingent valuation methods are used to identify observed and unobserved preferences of goods and services. We apply these methods to compute willingness to pay (WTP) for a product conditional on having purchased another offered product. We provide a derivation for own-price and compensated cross-price elasticities whose results suggest a pricing strategy considering all offered goods simultaneously. Therefore, we solve the social planner’s problem maximizing a weighted function of producer’s revenues and consumer’s utility for the set of optimal prices. We show an application to collegiate sports, but these methods can be extended in a straightforward fashion to other goods.

Date: 2016-11-30
New Economics Papers: this item is included in nep-mkt and nep-upt
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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 (2019)
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