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Naming your own price mechanisms: Revenue gain or drain?

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  • Shapiro, Dmitry
  • Zillante, Arthur

Abstract

We experimentally study the profitability of pricing mechanisms that allow customers to quote their own prices, such as Priceline.com's "Name-Your-Own-Price" (NYOP). Presumably firms find this sales method profit-maximizing despite the concerns that NYOP websites can cannibalize profit from standard distribution channels. Using a laboratory experiment we compare outcomes between NYOP and posted-price settings. We find that NYOP mechanisms that do not conceal information about products increase profit and consumer surplus. When NYOP channels conceal information about products there is no significant change in profit unless the threshold above which bids are accepted is set near marginal cost, whereby profit decreases.

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  • Shapiro, Dmitry & Zillante, Arthur, 2009. "Naming your own price mechanisms: Revenue gain or drain?," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 725-737, November.
    • Handle: RePEc:eee:jeborg:v:72:y:2009:i:2:p:725-737
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    Cited by:

    1. Rachel R. Chen & Esther Gal-Or & Paolo Roma, 2014. "Opaque Distribution Channels for Competing Service Providers: Posted Price vs. Name-Your-Own-Price Mechanisms," Operations Research, INFORMS, vol. 62(4), pages 733-750, August.
    2. Scott Fay & Robert Zeithammer, 2017. "Bidding for Bidders? How the Format for Soliciting Supplier Participation in NYOP Auctions Impacts Channel Profit," Management Science, INFORMS, vol. 63(12), pages 4324-4344, December.
    3. Dmitry Shapiro, 2011. "Profitability of the Name-Your-Own-Price Channel in the Case of Risk-Averse Buyers," Marketing Science, INFORMS, vol. 30(2), pages 290-304, 03-04.
    4. Zhang, Yi & Hua, Guowei & Cheng, T.C.E. & Zhang, Juliang & Fernandez, Vicenc, 2020. "Risk pooling through physical probabilistic selling," International Journal of Production Economics, Elsevier, vol. 219(C), pages 295-311.
    5. Malgorzata Ogonowska, 2012. "Selling Tourism Products through the Opaque Channels," Post-Print halshs-01219441, HAL.
    6. Malgorzata Ogonowska & Dominique Torre, 2010. "Joint Opaque booking systems for online travel agencies," Working Papers hal-00476150, HAL.
    7. Reisman, Richard & Payne, Adrian & Frow, Pennie, 2019. "Pricing in consumer digital markets: A dynamic framework," Australasian marketing journal, Elsevier, vol. 27(3), pages 139-148.
    8. Robert Zeithammer, 2015. "Optimal selling strategies when buyers name their own prices," Quantitative Marketing and Economics (QME), Springer, vol. 13(2), pages 135-171, June.
    9. Rice, Dan Hamilton & Fay, Scott A. & Xie, Jinhong, 2014. "Probabilistic selling vs. markdown selling: Price discrimination and management of demand uncertainty in retailing," International Journal of Research in Marketing, Elsevier, vol. 31(2), pages 147-155.
    10. Nosoohi, Iman, 2022. "Posted price and name-your-own-price in a product line design problem," Journal of Retailing and Consumer Services, Elsevier, vol. 64(C).
    11. 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.
    12. Robert Zeithammer, 2015. "Optimal selling strategies when buyers name their own prices," Quantitative Marketing and Economics (QME), Springer, vol. 13(2), pages 135-171, June.
    13. Martin Spann & Robert Zeithammer & Marco Bertini & Ernan Haruvy & Sandy D. Jap & Oded Koenigsberg & Vincent Mak & Peter Popkowski Leszczyc & Bernd Skiera & Manoj Thomas, 2018. "Beyond Posted Prices: the Past, Present, and Future of Participative Pricing Mechanisms," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 5(1), pages 121-136, March.

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