Optimal bidding in a participative mechanism with bundling and rebidding options.

Document Type : Research Paper

Authors

Department of Industrial Engineering, Amirkabir University of Technology, Tehran, Iran

Abstract

This paper studies a name-your-own-price (NYOP) mechanism in which the retailer allows buyers to participate in the pricing process by submitting bids. Buyers can place both joint and individual bids to purchase products either as a bundle or individually. The retailer utilizes NYOP and posted-price channels simultaneously. The focus of this paper is to assess the impact of adding the posted-price channel and bundling option on buyer behavior and retailer profit. The paper develops a two-stage model where the first stage involves the buyer’s decision on participating in NYOP. Moreover, buyers can choose between bidding for a bundle or a single item. Decisions in the second stage depend on the outcome of the first stage. Four distinct purchasing scenarios are formulated to outline the potential ways that buyers can use to purchase products. Furthermore, the buyers’ learning effect on their bidding strategy is considered. A dynamic programming approach with backward induction is employed to solve the problem. Moreover, the concavity analysis is used to obtain the solution of each nonlinear subproblem. Then, a solution algorithm based on mathematical analysis is proposed. Results reveal that the frictional costs of the first period have a greater impact on the buyer utility than those of the second period. Moreover, applying the NYOP alongside the posted-price can enhance the retailer’s profit. In particular, the retailer can use the NYOP and bundling mechanisms as encouraging tools to attract buyers and increase his profit. Thus, NYOP is a very effective instrument for market penetration.

Keywords

Main Subjects

References

Abbas, A. E., & Hann, I. H. (2010). Measuring risk aversion in a name-your-own-price channel. Decision Analysis, 7(1), 123–136.
Amaldoss, W., & Jain, S. (2008). Joint Bidding in the Name-Your-Own-Price Channel : A Strategic Analysis. Management Science Publication, 54(10), 1685–1699.
Anderson, C. K., & Xie, X. (2014). Pricing and market segmentation using opaque selling mechanisms. European Journal of Operational Research, 233(1), 263–272.
Bernhardt, M., & Spann, M. (2010). An Empirical Analysis of Bidding Fees in Name-your-own-price Auctions. Journal of Interactive Marketing, 24(4), 283–296.
Bucarey, V., Elloumi, S., Labbé, M., & Plein, F. (2021). Models and algorithms for the product pricing with single-minded customers requesting bundles. Computers and Operations Research, 127.
Cai, G., Chao, X., & Li, J. (2009). Optimal reserve prices in name-your-own-price auctions with bidding and channel options. Production and Operations Management, 18(6), 653–671.
Caldentey, R., & Vulcano, G. (2007). Online auction and list price revenue management. Management Science, 53(5), 795–813.
Cao, Q., Geng, X., Stecke, K. E., & Zhang, J. (2019). Operational role of retail bundling and its implications in a supply chain. Production and Operations Management, 28(8), 1903–1920.
Chen, R. R., Gal-Or, E., & Roma, P. (2014). Opaque distribution channels for competing service providers: Posted price vs. name-your-own-price mechanisms. Operations Research Publication, 62(4), 733–750.
Chen, T., Yang, F., & Guo, X. (2021). Optimal bundling in a distribution channel in the presence of substitutability and complementarity. International Journal of Production Research, 59(4), 1145–1165.
Etzion, H., Pinker, E., & Seidmann., A. (2006). Analyzing the simultaneous use of auctions and posted prices for online selling. Manufacturing & Service Operations Management, 8(1), 68–91.
Fay, S. (2004). Partial-Repeat-Bidding in the name-your-own-price channel. Marketing Science, 23(3), 407–418.
Fay, S. (2009). Competitive reasons for the Name-Your-Own-Price channel. Marketing Letters, 20(3), 277–293.
Feng, B., Liu, W., & Mao, Z. (2018). Use of opaque sales channels in addition to traditional channels by service providers. International Journal of Production Research, 56(10), 3369–3383.
Feng, B., Mao, Z., & Li, H. (2019). Choices for competing service providers with heterogeneous customers : Traditional versus opaque sales modes. Omega, 102133.
Gupta, A., & Abbas, A. E. (2008). Repeat bidding on internet-based multiple-item “name-your-own-price” auctions. IEEE Transactions on Engineering Management, 55(4), 579–589.
Hann, I. H., & Terwiesch, C. (2003). Measuring the frictional costs of online transactions: The case of a name-your-own-price channel. Management Science, 49(11), 1563–1579.
Hemmati, M., Ghomi, S. M. T. F., & Sajadieh, M. S. (2023). Separate and bundling selling strategies for complementary products in a participative pricing mechanism. Computers & Industrial Engineering, 177(January), 109018.
Hemmati, M., Mirzapour Al-e-Hashem, S. M. J., & Fatemi Ghomi, S. M. T. (2021). Heuristic analyses of separate and bundling sales for complimentary products under consignment stock policy. Computers and Industrial Engineering, 157.
Hinz, O., Hann, I. H., & Spann, M. (2011). Price discrimination in E-commerce? An examination of dynamic pricing in name-your-own price markets. MIS Quarterly: Management Information Systems, 35(1), 81–98.
Huang, X., Soˇsi´c, G., & Kersten, G. (2017). Selling Through Priceline ? On the Impact of Name-Your-Own-Price in competitive market. IISE Transactions, 49(3), 304–319.
Jena, S. K., & Ghadge, A. (2022). Product bundling and advertising strategy for a duopoly supply chain: a power-balance perspective. Annals of Operations Research, 1729–1753.
Joo, M., Mazumdar, T., & Raj, S. P. (2012). Bidding Strategies and Consumer Savings in NYOP Auctions. Journal of Retailing, 88(1), 180–188.
Levina, T., Levin, Y., McGill, J., & Nediak, M. (2015). Strategic Consumer Cooperation in a Name-Your-Own-Price Channel. Production and Operations Management, 24(12), 1883–1900.
Li, J., Wang, Q., Yan, H., & Zhu,  and S. X. (2016). Optimal Remanufacturing and Pricing Strategies Under Name-Your-Own-Price Auctions and Stochastic Demand. Asia-Pacific Journal of Operational Research, 33(1), 1–22.
Li, Q., Tang, C. S., & Xu, H. (2020). Mitigating the Double-Blind Effect in Opaque Selling : Inventory and Information. Production and Operations Management.
Lin, X., Zhou, Y. W., Xie, W., Zhong, Y., & Cao, B. (2020). Pricing and Product-bundling Strategies for E-commerce Platforms with Competition. European Journal of Operational Research, 283(3), 1026–1039.
Liu, J., Dai, R., David, X., & Li, Y. (2016). Information revelation and customer decision-making process of repeat-bidding name-your-own-price auction. Decision Support Systems, 90, 46–55.
Nosoohi, I. (2022). Posted price and name-your-own-price in a product line design problem. Journal of Retailing and Consumer Services, 64, 102836.
Sabbaghnia, A., Heydari, J., & Razmi, J. (2022). Participative pricing and donation programs in a socially concerned supply chain. Corporate Social Responsibility and Environmental Management., 1–19.
Shapiro, D. (2011). Profitability of the name-your-own-price channel in the case of risk-averse buyers. Marketing Science, 30(2), 290–304.
Spann, M., Skiera, B., & Schäfers, B. (2004). Measuring individual frictional costs and willingness-to-pay via name-your-own-price mechanisms. Journal of Interactive Marketing, 18(4), 22–36.
Spann, M., & Tellis, G. J. (2006). Does the internet promote better consumer decisions? The case of name-your-own-price auctions. Journal of Marketing, 70(1), 65–78.
Spann, M., Zeithammer, R., Bertini, M., Haruvy, E., Jap, S. D., Koenigsberg, O., … Thomas, M. (2018). Beyond Posted Prices: the Past, Present, and Future of Participative Pricing Mechanisms. Customer Needs and Solutions, 5(1), 121–136.
Vamosiu, A. (2018). Optimal bundling under imperfect competition. International Journal of Production Economics, 195, 45–53.
Wagner, R. L., & Pacheco, N. A. (2020). Name-your-own-price as participative pricing strategy: a review of the literature from 2001–2017. Journal of Strategic Marketing, 28(7), 583–600.
Zeithammer, R., Stich, L., Spann, M., & Häubl, G. (2019). Consumer Behavior in Bidding Markets with Participation Costs. Available at SSRN 3474406.
Journal of Industrial and Systems Engineering
Volume 15, Issue 1 - Serial Number 1
January 2023
Pages 328-350

Files

History

  • Receive Date: 30 April 2023
  • Revise Date: 17 August 2023
  • Accept Date: 29 August 2023

Share

How to cite

Statistics