Name-your-own-price Mechanisms: Revenue Gain or Drain?

Speaker: Dr. Artie Zillante, University of North Carolina Charlotte

 

 

Abstract

 

The surge in online pricing mechanisms such as Priceline.comi's "name your own price" (NYOP) leaves open an empirical question of why firms would deviate from the standard practices of posting a take-it-or-leave-it ofer. Presumably firms find this sales method more profitable, despite some theoretical arguments that claim that a posted-price is always at least as good at generating revenue as any other mechanism. We use laboratory experiments to compare the NYOP mechanism with the standard posted-price mechanism. We find that using an NYOP mechanism can increase profit and consumer surplus when consumers are certain about the good they will receive, but when consumers are uncertain about the good there is no significant change in profit and a decrease in consumer surplus.