Approximation Algorithms for Product Framing and Pricing

49 Pages Posted: 28 Oct 2018

See all articles by Guillermo Gallego

Guillermo Gallego

HKUST

Anran Li

LSE

Van-Anh Truong

Columbia University - Department of Industrial Engineering and Operations Research (IEOR)

Xinshang Wang

Alibaba Group

Date Written: October 3, 2018

Abstract

We propose one of the first models of "product framing" and pricing. Product framing refers to the way consumer choice is influenced by how the products are framed, or displayed. We present a model where a set of products are displayed, or framed, into a set of virtual web pages. We assume that consumers consider only products in the top pages, with different consumers willing to see different numbers of pages. Consumers select a product, if any, from these pages following a general choice model. We show that the product framing problem is NP-hard. We derive algorithms with guaranteed performance relative to an optimal algorithm under reasonable assumptions. Our algorithms are fast and easy to implement.

We also present structural results and design algorithms for pricing under framing effects for the multinomial logit model. We show that for profit maximization problems, at optimality, products are displayed in descending order of their value gap and in ascending order of their markups.

Suggested Citation

Gallego, Guillermo and Li, Anran and Truong, Van-Anh and Wang, Xinshang, Approximation Algorithms for Product Framing and Pricing (October 3, 2018). Available at SSRN: https://ssrn.com/abstract=3260279 or http://dx.doi.org/10.2139/ssrn.3260279

Guillermo Gallego

HKUST ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

HOME PAGE: http://https://seng.ust.hk/about/people/faculty/guillermo-gallego

Anran Li

LSE ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Van-Anh Truong

Columbia University - Department of Industrial Engineering and Operations Research (IEOR) ( email )

331 S.W. Mudd Building
500 West 120th Street
New York, NY 10027
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
77
Abstract Views
543
rank
382,471
PlumX Metrics