Naming Your Own Price Mechanisms: Revenue Gain or Drain?

18 Pages Posted: 31 Aug 2008

See all articles by Arthur Zillante

Arthur Zillante

George Mason University

Dmitry Shapiro

Department of Economics, Seoul National University

Date Written: August, 29 2008

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 web-sites 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.

Keywords: Name Your Own Price, Priceline, reverse pricing

JEL Classification: C9, D21, D4

Suggested Citation

Zillante, Arthur and Shapiro, Dmitry, Naming Your Own Price Mechanisms: Revenue Gain or Drain? (August, 29 2008). Available at SSRN: https://ssrn.com/abstract=1260854 or http://dx.doi.org/10.2139/ssrn.1260854

Arthur Zillante

George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States

Dmitry Shapiro (Contact Author)

Department of Economics, Seoul National University ( email )

San 56-1, Silim-dong, Kwanak-ku
Seoul 151-742

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