Abstract

http://ssrn.com/abstract=1292478
 
 

References (41)



 
 

Citations (1)



 


 



Optimal Criteria for Selecting Price Discrimination Metrics When Buyers Have Log-Normally Distributed Willingness-to-Pay


Ke-Wei Huang


National University of Singapore - Department of Information Systems

March 20, 2009


Abstract:     
This paper investigates how a monopoly seller should determine the optimal set of pricing variables (pricing metrics) for third-degree price discrimination applications in which buyers have log-normally distributed willingness-to-pay (WTP). In a setup that closely resembles linear and probit regressions, this paper shows that when the monopoly seller is restricted to using one metric and no price discrimination cost exists, the pricing metric that best reduces the residual variance of buyers' willingness-to-pay is the one that maximizes revenue. Equivalently, the explanatory power of willingness-to-pay is the ordering criterion. This paper also shows that this criterion is not universally true when willingness-to-pay follows other distributions. When the seller incurs price discrimination costs associated with different metrics, the ordering criterion becomes the explanatory power of each pricing metric divided by its cost. This paper also discusses how to apply this model to solve real-world pricing problems with contingent valuation models or using probit regression.

Number of Pages in PDF File: 32

Keywords: Price Discrimination, Pricing Research, Promotion, Segmentation, Probit Regression, Contingent Valuation Model, Willingness-to-pay

JEL Classification: M21, M31, L11

working papers series


Download This Paper

Date posted: November 1, 2008 ; Last revised: March 23, 2009

Suggested Citation

Huang, Ke-Wei, Optimal Criteria for Selecting Price Discrimination Metrics When Buyers Have Log-Normally Distributed Willingness-to-Pay (March 20, 2009). Available at SSRN: http://ssrn.com/abstract=1292478 or http://dx.doi.org/10.2139/ssrn.1292478

Contact Information

Ke-Wei Huang (Contact Author)
National University of Singapore - Department of Information Systems ( email )
COM2, 04-18
Singapore 117543
Singapore
6516-2786 (Phone)
6779-7365 (Fax)
HOME PAGE: http://www.comp.nus.edu.sg/~huangkw/
Feedback to SSRN


Paper statistics
Abstract Views: 716
Downloads: 101
Download Rank: 155,704
References:  41
Citations:  1

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.250 seconds