Itemized Pricing in B2B Bundles with Diminishing Reservation Prices and Loss Averse Customers

Raj, Ritwik, Mark H. Karwan, Chase Murray, and Lei Sun. "Itemized pricing in B2B bundles with diminishing reservation prices and loss averse customers." Journal of Revenue and Pricing Management (2021): 1-18.

30 Pages Posted: 27 Jul 2021

See all articles by Ritwik Raj

Ritwik Raj

University at Buffalo

Mark Karwan

University at Buffalo

Chase Murray

State University of New York (SUNY) - University at Buffalo

Lei Sun

Linde plc

Date Written: January 21, 2021

Abstract

This study, based on a real problem in the industrial gas business, examines product bundling under B2B relations with two unique customer behavioral characteristics: (i) customers' discount expectation on products increases with the magnitude of the business offered to the seller, and (ii) they are loss averse and require an itemized price of each product in the bundle. To model the discount expectation, we introduce a concept in which the reservation price of each component in a bundle diminishes from its stand-alone value by a factor that is proportional to the value of the bundle. For the second characteristic, we define a utility function corresponding to gains or losses experienced on reservation prices for each product in the bundle. The two features are incorporated into the special case of a two-product bundle and mathematical models for four variants of the classical pure bundling are proposed. Results indicate that both discount expectation and loss aversion negatively impact the economies of pure bundling.

Keywords: Bundling, Itemized pricing, Diminishing reservation price, Loss aversion, B2B

Suggested Citation

Raj, Ritwik and Karwan, Mark and Murray, Chase and Sun, Lei, Itemized Pricing in B2B Bundles with Diminishing Reservation Prices and Loss Averse Customers (January 21, 2021). Raj, Ritwik, Mark H. Karwan, Chase Murray, and Lei Sun. "Itemized pricing in B2B bundles with diminishing reservation prices and loss averse customers." Journal of Revenue and Pricing Management (2021): 1-18., Available at SSRN: https://ssrn.com/abstract=3879755 or http://dx.doi.org/10.2139/ssrn.3879755

Ritwik Raj (Contact Author)

University at Buffalo

Department of Industrial & Systems Engineering
341 Bell Hall
Buffalo, NY 14260
United States

Mark Karwan

University at Buffalo ( email )

12 Capen Hall
Buffalo, NY 14260
United States

Chase Murray

State University of New York (SUNY) - University at Buffalo

Industrial & Systems Engineering
341 Bell Hall
Buffalo, NY 14260
United States

Lei Sun

Linde plc ( email )

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