Bargaining at Retail Stores: Evidence from Vienna

In the West, where posted prices are the norm, it is uncommon to observe consumers receive discounts below the posted price. Nevertheless, we find that when stores are asked, a discount is granted approximately 40% of the time, with a median discount percentage of 10%. Discounts are more likely to be offered by small-scale firms, for higher-priced products, and for nonsale items. More generally, differences in price delegation behavior across firm types serve as an indicator that monitoring costs and employee skills are important drivers of bargaining behavior. This paper was accepted by Duncan Simester, marketing

Examining the impact of external reference prices on seller price image dimensions and purchase intentions in pay what you want (PWYW)

PurposePay what you want (PWYW) is a participative pricing mechanism that permits customers complete freedom to choose prices. PWYW literature reports the influence of external reference price (ERP) on customers' price decisions and payments. The current research examines the influence of ERP presence, salience and understanding at the seller level by analysing customers' perceptions of seller price image dimensions and purchase intentions.Design/methodology/approachStudy 1 tests the impact of ERP presence and salience in controlled lab settings while Study 2 takes this investigation further by including the moderating effect of ERP understanding on seller price image dimensions and purchase intentions in online settings.FindingsResults illustrate the positive impact of ERP presence on all seller price image dimensions excluding the perceived price level. Perceived price fairness mediates the impact of ERP presence on perceived value. ERP salience positively impacts price processability. ERP presence and salience attached to it positively impact customers' purchase intentions through seller price image dimensions.Originality/valueThis is possibly the first paper to investigate the ERP effect on seller price image dimensions in a PWYW context that lacks fixed posted prices.

Bidding behavior in auctions versus posted prices: comparisons of mean and marginal effects

Economic experiments have been widely used to elicit individuals' evaluation for various commodities. Common elicitation methods include auction and posted price mechanisms. A field experiment is designed to compare willingness-to-pay (WTP) estimates between these two mechanisms. Despite both of these formats being theoretically incentive compatible and demand revealing, results from 115 adult consumers indicate that WTP estimates obtained from an auction are 32–39 percent smaller than those from a posted price mechanism. A comparison in statistical significance shows that auctions require a smaller sample size than posted price mechanisms in order to detect the same preference change. Nevertheless, the signs of marginal effects for different product characteristics are consistent in both mechanisms.

Discounts and Deadlines in Consumer Search

We present a new equilibrium search model where consumers initially search among discount opportunities, but are willing to pay more as a deadline approaches, eventually turning to full-price sellers. The model predicts equilibrium price dispersion and rationalizes discount and full-price sellers coexisting without relying on ex ante heterogeneity. We apply the model to online retail sales via auctions and posted prices, where failed attempts to purchase reveal consumers' reservation prices. We find robust evidence supporting the theory. We quantify dynamic search frictions arising from deadlines and show how, with deadline-constrained buyers, seemingly neutral platform fee increases can cause large market shifts. (JEL D11, D44, D83, L81)

Perishability, dynamic pricing and price discrimination: evidence from flower markets in Bogotá

Perishable products traded in informal markets might be subject to price variations in two opposite directions. Whereas the absence of posted prices opens the door for price discrimination based on some buyers' attributes, the reduction in quality over time might decrease prices to secure a transaction. We use an audit experiment to detect these pricing patterns in the informal flower markets nearby the cemeteries of Bogotá, Colombia. We analyze 441 price quotations. We interpret the lower prices in the afternoon than in the morning as evidence of dynamic pricing. Regarding price discrimination, we find that women are quoted a higher price than men, whereas attire (formal versus informal) does not affect prices. The price variations associated with the time of the day and the gender of the buyer appear to be independent of each other.

Feature-Based Dynamic Pricing

We consider the problem faced by a firm that receives highly differentiated products in an online fashion. The firm needs to price these products to sell them to its customer base. Products are described by vectors of features and the market value of each product is linear in the values of the features. The firm does not initially know the values of the different features, but can learn the values of the features based on whether products were sold at the posted prices in the past. This model is motivated by applications such as online marketplaces, online flash sales, and loan pricing. We first consider a multidimensional version of binary search over polyhedral sets and show that it has a worst-case regret which is exponential in the dimension of the feature space. We then propose a modification of the prior algorithm where uncertainty sets are replaced by their Löwner-John ellipsoids. We show that this algorithm has a worst-case regret which is quadratic in the dimension of the feature space and logarithmic in the time horizon. We also show how to adapt our algorithm to the case where valuations are noisy. Finally, we present computational experiments to illustrate the performance of our algorithm. This paper was accepted by Yinyu Ye, optimization.

Persuading Customers to Buy Early: The Value of Personalized Information Provisioning

We study a pricing and information provisioning game between a better-informed seller (such as a retailer) and its customers. The seller is (ex post) better informed about product availability and can choose how to communicate this information to the customers. The customers are heterogeneous in their valuation for the product. The firm optimizes on publicly posted prices (which are the same for all customers) and its information provisioning (which can be personalized). Using a Bayesian persuasion framework, we find that public information provisioning, in which the firm sends the same information to all customers, has limited value. However, personalized information provisioning, in which the firm can share different information with different customers, has significant value and has attributes very similar to personalized pricing. This paper was accepted by Gabriel Weintraub, revenue management and market analytics.