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Profitability of the Name-Your-Own-Price Channel in the Case of Risk-Averse Buyers

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  • Dmitry Shapiro

    ()
    (Belk College of Business, University of North Carolina Charlotte, Charlotte, North Carolina 28223)

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    Abstract

    In this paper, I study profitability of the name-your-own-price channel (NYOP) in the presence of risk-averse buyers. First, I provide conditions that guarantee that for the monopolistic seller the NYOP is more profitable than the posted price. Second, I consider a more competitive framework where buyers with rejected bids have access to an alternative option. I show that if under the posted-price scenario there are unserved customers with low valuations, then NYOP is more profitable than the posted price. Finally, I study whether adding the posted-price option to the NYOP will further increase the seller's profit and show that for the decreasing absolute risk-aversion utility and a monopolistic seller it does not. In the presence of an alternative option, the answer depends on whether buyers consider the posted-price option and the alternative option to be close substitutes or not. Adding the posted-price option will increase the profit in the former case and will not in the latter.

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    File URL: http://dx.doi.org/10.1287/mksc.1100.0622
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 30 (2011)
    Issue (Month): 2 (03-04)
    Pages: 290-304

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    Handle: RePEc:inm:ormksc:v:30:y:2011:i:2:p:290-304

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    Related research

    Keywords: pricing; bidding; name-your-own-price; reverse auctions;

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    Cited by:
    1. Huang, Ching-I & Chen, Jong-Rong & Lee, Chiu-Yu, 2013. "Buyer behavior under the Best Offer mechanism: A theoretical model and empirical evidence from eBay Motors," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 11-33.

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