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List Pricing versus Dynamic Pricing: Impact on the Revenue Risk

Matthias Koenig and Joern Meissner
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Matthias Koenig: Department of Management Science, Lancaster University Management School,

No MRG/0011, Working Papers from Department of Management Science, Lancaster University

Abstract: We consider the problem of a firm selling multiple products that consume a single resource over a finite time period. The amount of the resource is exogenously fixed. We analyze the difference between a dynamic pricing policy and a list price capacity control policy. The dynamic pricing policy adjusts prices steadily resolving the underlying problem every time step, whereas the list pricing policy sets static prices once but controls the capacity by allowing or preventing product sales. As steady price changes are often costly or unachievable in practice, we investigate the question of how much riskier it is to apply a list pricing policy rather than a dynamic pricing policy. We conduct several numerical experiments and compare expected revenue, standard deviation, and conditional-value-at-risk between the pricing policies. The differences between the policies show that list pricing can be a useful strategy when dynamic pricing is costly or impractical.

Keywords: conditional value at risk; capacity control; dynamic pricing; revenue management; risk (search for similar items in EconPapers)
JEL-codes: C61 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2008-09, Revised 2009-04
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Published in European Journal of Operational Management Vol 204, Issue 3 (August 2010), pp 505-512.

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