IDEAS home Printed from https://ideas.repec.org/a/inm/orinte/v39y2009i4p307-315.html
   My bibliography  Save this article

Setting Prices on Priceline

Author

Listed:
  • Chris K. Anderson

    (School of Hotel Administration, Cornell University, Ithaca, New York 14853)

Abstract

Priceline is best known for its name-your-own-price format, in which consumers bid for services but not for service providers. Because Priceline serves as an opaque selling mechanism, it attracts price-conscious consumers. Sellers also benefit because they can price into multiple market segments without worrying that they are diluting revenue they might receive from customers who are willing to use conventional selling channels and pay more. A firm that releases its inventory to Priceline must manage the trade-off of pricing its inventory too low (and forgoing revenue) versus pricing it too high and forgoing a sale. In this paper, we outline the mechanism that Priceline uses to determine if customer bids are successful and, given this mechanism, establishes optimal prices and inventory allocations for Kimpton Hotels.

Suggested Citation

  • Chris K. Anderson, 2009. "Setting Prices on Priceline," Interfaces, INFORMS, vol. 39(4), pages 307-315, August.
    • Handle: RePEc:inm:orinte:v:39:y:2009:i:4:p:307-315
    DOI: 10.1287/inte.1090.0447
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/inte.1090.0447
    Download Restriction: no
    File URL: https://libkey.io/10.1287/inte.1090.0447?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Il-Horn Hann & Christian Terwiesch, 2003. "Measuring the Frictional Costs of Online Transactions: The Case of a Name-Your-Own-Price Channel," Management Science, INFORMS, vol. 49(11), pages 1563-1579, November.
    2. Qian Liu & Garrett J. van Ryzin, 2008. "Strategic Capacity Rationing to Induce Early Purchases," Management Science, INFORMS, vol. 54(6), pages 1115-1131, June.
    3. Tak C. Lee & Marvin Hersh, 1993. "A Model for Dynamic Airline Seat Inventory Control with Multiple Seat Bookings," Transportation Science, INFORMS, vol. 27(3), pages 252-265, August.
    4. Wen Zhao & Yu-Sheng Zheng, 2000. "Optimal Dynamic Pricing for Perishable Assets with Nonhomogeneous Demand," Management Science, INFORMS, vol. 46(3), pages 375-388, March.
    5. Scott Fay, 2004. "Partial-Repeat-Bidding in the Name-Your-Own-Price Channel," Marketing Science, INFORMS, vol. 23(3), pages 407-418, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anderson, Chris K. & Xie, Xiaoqing, 2014. "Pricing and market segmentation using opaque selling mechanisms," European Journal of Operational Research, Elsevier, vol. 233(1), pages 263-272.
    2. 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.
    3. 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.
    4. David Post & Martin Spann, 2012. "Improving Airline Revenues with Variable Opaque Products: “Blind Booking” at Germanwings," Interfaces, INFORMS, vol. 42(4), pages 329-338, August.
    5. 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.
    6. Nadia El-Nemr & Béatrice Canel-Depitre & Atour Taghipour, 2017. "Determinants Of Hotel Room Rates," Post-Print hal-02332636, HAL.
    7. Fay, Scott & Lee, Seung Hwan (Shawn), 2015. "The role of customer expectations in name-your-own-price markets," Journal of Business Research, Elsevier, vol. 68(3), pages 675-683.
    8. Sasanuma, Katsunobu & Hibiki, Akira & Sexton, Thomas, 2022. "An opaque selling scheme to reduce shortage and wastage in perishable inventory systems," Operations Research Perspectives, Elsevier, vol. 9(C).
    9. Zhang, Yi & Hua, Guowei & Wang, Shouyang & Zhang, Juliang & Fernandez, Vicenc, 2018. "Managing demand uncertainty: Probabilistic selling versus inventory substitution," International Journal of Production Economics, Elsevier, vol. 196(C), pages 56-67.
    10. Martin Spann & Robert Zeithammer & Gerald Häubl, 2010. "Optimal Reverse-Pricing Mechanisms," Marketing Science, INFORMS, vol. 29(6), pages 1058-1070, 11-12.
    11. 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.
    12. Krämer, Florentin & Schmidt, Klaus M. & Spann, Martin & Stich, Lucas, 2017. "Delegating pricing power to customers: Pay What You Want or Name Your Own Price?," Journal of Economic Behavior & Organization, Elsevier, vol. 136(C), pages 125-140.
    13. Bernhardt, Martin & Spann, Martin, 2010. "An Empirical Analysis of Bidding Fees in Name-your-own-price Auctions," Journal of Interactive Marketing, Elsevier, vol. 24(4), pages 283-296.
    14. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. 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.
    3. Feng, Youyi & Xiao, Baichun, 2006. "A continuous-time seat control model for single-leg flights with no-shows and optimal overbooking upper bound," European Journal of Operational Research, Elsevier, vol. 174(2), pages 1298-1316, October.
    4. Krämer, Florentin & Schmidt, Klaus M. & Spann, Martin & Stich, Lucas, 2017. "Delegating pricing power to customers: Pay What You Want or Name Your Own Price?," Journal of Economic Behavior & Organization, Elsevier, vol. 136(C), pages 125-140.
    5. Yalç{i}n Akçay & Harihara Prasad Natarajan & Susan H. Xu, 2010. "Joint Dynamic Pricing of Multiple Perishable Products Under Consumer Choice," Management Science, INFORMS, vol. 56(8), pages 1345-1361, August.
    6. Gérard P. Cachon & Pnina Feldman, 2015. "Price Commitments with Strategic Consumers: Why It Can Be Optimal to Discount More Frequently … Than Optimal," Manufacturing & Service Operations Management, INFORMS, vol. 17(3), pages 399-410, July.
    7. Fay, Scott, 2008. "Selling an opaque product through an intermediary: The case of disguising one's product," Journal of Retailing, Elsevier, vol. 84(1), pages 59-75.
    8. Joo, Mingyu & Mazumdar, Tridib & Raj, S.P., 2012. "Bidding Strategies and Consumer Savings in NYOP Auctions," Journal of Retailing, Elsevier, vol. 88(1), pages 180-188.
    9. Chen, Yahong & Li, Jinlin & Huang, He & Ran, Lun & Hu, Yusheng, 2017. "Encouraging information sharing to boost the name-your-own-price auction," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 479(C), pages 108-117.
    10. Zhuang, Weifen & Li, Michael Z.F., 2012. "Monotone optimal control for a class of Markov decision processes," European Journal of Operational Research, Elsevier, vol. 217(2), pages 342-350.
    11. Grace Lin & Yingdong Lu & David Yao, 2007. "Stochastic Knapsack Problem Revisited: Switch-Over Policies and Dynamic Pricing," Papers 0708.1146, arXiv.org.
    12. Tunuguntla, Vaishnavi & Basu, Preetam & Rakshit, Krishanu & Ghosh, Debabrata, 2019. "Sponsored search advertising and dynamic pricing for perishable products under inventory-linked customer willingness to pay," European Journal of Operational Research, Elsevier, vol. 276(1), pages 119-132.
    13. Ali E. Abbas & Il-Horn Hann, 2010. "Measuring Risk Aversion in a Name-Your-Own-Price Channel," Decision Analysis, INFORMS, vol. 7(1), pages 123-136, March.
    14. Dmitry Shapiro & Xianwen Shi, 2008. "Market Segmentation: The Role of Opaque Travel Agencies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(4), pages 803-837, December.
    15. 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.
    16. Fay, Scott & Lee, Seung Hwan (Shawn), 2015. "The role of customer expectations in name-your-own-price markets," Journal of Business Research, Elsevier, vol. 68(3), pages 675-683.
    17. Gustavo Vulcano & Garrett van Ryzin & Costis Maglaras, 2002. "Optimal Dynamic Auctions for Revenue Management," Management Science, INFORMS, vol. 48(11), pages 1388-1407, November.
    18. 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.
    19. Pak, K. & Piersma, N., 2002. "airline revenue management," ERIM Report Series Research in Management ERS-2002-12-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    20. Malgorzata Ogonowska, 2012. "Selling Tourism Products through the Opaque Channels," Post-Print halshs-01219441, HAL.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:orinte:v:39:y:2009:i:4:p:307-315. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.