Name-your-own-price Research Articles

Separate and bundling selling strategies for complementary products in a participative pricing mechanism

This paper studies the name-your-own-price (NYOP) mechanism for complementary products in which customers participate in the pricing mechanism by submitting bids. If the bid exceeds a concealed threshold, the transaction occurs. Considering supply uncertainty, two different sale strategies, bundling and separate sales, are addressed. Under the separate sale, customers can submit a bid for each of the individual products. Under the bundling sale, products are sold as a package and customers can place a single bid on it. A game-theoretic approach is used, and with respect to the concavity of the profit function, equilibrium thresholds, optimal retailer strategy, and customers bidding behavior are obtained. Results showed that complementation degree and marginal costs are critical factors that can change dominant strategy and bidding policy. High extra valuation gained by purchasing complementary products encourages customers to submit greater bids and buy the bundle which in turn increases the firm’s profit. The high value of low-marginal cost also causes the separate sale to outperform the bundling strategy. Furthermore, NYOP acts as a price discrimination tool and facilitates segmenting the market.

Consumer reactions to pay‐what‐you‐want and name‐your‐own‐price mechanisms

AbstractPay‐what‐you‐want (PWYW) and name‐your‐own‐price (NYOP) participative pricing mechanisms are becoming more popular among firms. In response, researchers have examined separate outcomes for each mechanism. However, questions remain, especially regarding which mechanism is most beneficial for consumers and companies. Therefore, our main objective is to investigate the role of these participative pricing mechanisms on consumers' pricing satisfaction, pain of payment, and amount of money they intend to pay. We also explore perceived control as mediating the effect of pricing mechanism on pricing satisfaction and pain of payment. Results from two experimental studies indicate that consumers are more satisfied with the pricing mechanism and feel less pain of payment under PWYW offers rather than under NYOP offers, but they intend to pay less than they would have paid for NYOP. External reference prices (ERPs) act as a boundary condition. That is, in both PWYW and NYOP pricing conditions, when retailers use ERPs, consumers intend to pay more but they are less satisfied with pricing and feel more pain of payment. The article concludes with implications for retailers using participative pricing.

Posted price and name-your-own-price in a product line design problem

In this research, we address Name your own price (NYOP) as a mechanism to offer products with transparent, rather than opaque, quality levels. We compare posted price (PP) and NYOP in a product line design problem from a firm’s viewpoint. We first consider the firm offering two vertically differentiated products that each can be priced by NYOP or PP. The quality level of products is considered either as a decision variable or as a fixed predetermined value for the firm. A customer correspondingly decides which product to purchase and if applicable, the bid at NYOP. We characterize both the customer’s and the firm’s decisions under four possible pricing scenarios. The results show that, it is most profitable for the firm to use PP for both products. We then consider if each product is offered by a competitive firm, where quality levels might again be decision variables or fixed. Results show that both competitive firms prefer PP to NYOP when they can create quality differentiation. The firm that offers the product with a lower quality level prefers PP to NYOP for all combinations of fixed quality levels as well. The other firm, with a higher quality level, also usually prefers PP to NYOP; However, it can be better off using NYOP when fixed quality levels are large and close enough to each other. In this case, the preference of NYOP over PP increases as customers’ willingness to pay enhances.

Impacts of hub nodes on the spread of Name-Your-Own-Price auction

In the Name-Your-Own-Price (NYOP) auction, the spread of bidding information among buyers is incredibly important for both buyers and sellers. However, the impact of hub nodes on the spread of bidding information is less investigated. In this research, we proposed a directed distance index, and used it to explore the roles of hub nodes during an NYOP auction. The results showed significant impacts of hub nodes on buyers’ behaviors and seller profits, but the impacts highly depend on the fading speed of information. When information fades fast, the hub nodes should be more valued to increase buyers’ bidding intention and make them bid more wisely. Seller’s profits will also be increased. While information fades slow, the hub nodes and the regular nodes should be approximately valued. Moreover, we explored the case of sharing failed bids, and found that the roles of hub nodes become more salient when buyers are more willing to share the failed bids.

Optimal Recycling Strategies with the Name-Your-Own-Price Mechanism

Recycling and remanufacturing have emerged as a key instrument in pursuit of environment-friendly sustainability in the society. Using game-theoretic approaches, this article investigates the optimal pricing and remanufacturing strategies of an original equipment manufacturer (OEM) in recycling used products by either itself or a third-party (TP) under the name-your-own-price (NYOP) mechanism. Our analysis demonstrates that either the OEM recycling or the TP recycling can outperform the other in terms of firms’ profits, consumer utility, and environmental impact. However, there exists a conflicting zone, in which the TP recycling is more profitable for the firms, but the OEM recycling leads to more consumer utility and less environmental impact. Comparing the NYOP mechanism to the list-price mechanism reveals that the OEM conditionally prefers the NYOP mechanism to the list-price mechanism; however, the OEM and the TP may encounter another preference confliction, in which the OEM prefers the NYOP whereas the TP prefers the list-price. The firms’ preference for NYOP dwindles as the used-product seller’s belief of the NYOP reserve price grows. Enabling haggling in NYOP does not always enhance the firms’ profits, consumer utility, and environment-friendly level.

Name-your-own-price as participative pricing strategy: a review of the literature from 2001–2017

ABSTRACT Name-your-own-price (NYOP), a pricing strategy often referred to as a reverse auction, is a participative pricing mechanism in which consumers have a relatively high control over the price they pay for a product or service. In an NYOP mechanism, buyers generate the final price of a product or service when they bid above an unrevealed threshold price set by the seller. Although NYOP as a pricing strategy was previously investigated, the literature remains scarce and fragmented. This paper attempts to assemble the relevant findings of this pricing strategy, by systematically reviewing all publications from 2001 to 2017. We explored the impacts of this mechanism for companies and consumers, such as increased profit for companies and higher savings for consumers, reduced competition for companies and increased satisfaction for consumers. We also highlighed the best practices of NYOP, such as the bidding practices, threshold price, and willingness to pay.

Consumer Behavior in Bidding Markets with Participation Costs

Consumer bidding is common in a wide variety of markets. An important source of friction in many markets with bidding is the cost of participation. We investigate the impact of participation costs on bidder entry and bidding behavior using incentive-compatible laboratory experiments with participation costs in the form of “bidding fees.” Instead of a standard auction, our experiments utilize the more tractable name-your-own-price (NYOP) setting. We find that both entry frequencies and bid magnitudes exceed the predictions of a risk-neutral benchmark model. Although the bids we observe can be rationalized with a standard risk-averse expected utility model, the entry decisions cannot, because more than half of our subjects enter when a risk-neutral bidder would not. We identify two important moderators of such “excess entry” — experience with the task and reduced task difficulty due to a decision aid. In contrast to their effect on entry decisions, experience and difficulty have no effect on bid magnitude, which suggests figuring out the bid amount is easier than deciding whether to enter. We also apply our data to examine the profitability of two-part tariffs in NYOP settings, and we find such a pricing strategy can only be profitable when consumers are relatively inexperienced and when they do not have access to an effective decision support tool.

Use of opaque sales channels in addition to traditional channels by service providers

Motivated by the recent opaque selling trend promoted by Priceline and Hotwire, this study examines a game in which two collaborative service providers may use an opaque selling channel to satisfy demand from both leisure and business customers. Further, the service providers must make a strategic decision as to which opaque selling channel is more profitable: posted price (PP) or name your own price (NYOP). By comparing the profits from the three cases (traditional single channel, traditional and PP dual channel, and traditional and NYOP dual channel), we find some interesting results driven by the strategic interaction between two service providers and by the heterogeneity of customers. Firstly, a dual channel offers advantages over the single traditional channel, as opaque selling allows service providers to utilise customers’ heterogeneity, and thus facilitates price discrimination and customer segmentation. Secondly, choosing the traditional and NYOP mechanism enables service providers to optimise profits when the proportion and valuation of business customers, the opacity of the service, and the leisure customers’ degree of pessimism are all relatively high. Lastly, the traditional and NYOP combination outperforms the traditional and PP mechanism as a result of the relatively large pessimistic state of leisure customers.

Bidding for Bidders? How the Format for Soliciting Supplier Participation in NYOP Auctions Impacts Channel Profit

In a name-your-own-price (NYOP) auction, consumers bid for a product or service. If a bid exceeds the concealed threshold price, the consumer receives the product at her bid price. This paper examines how to optimize the interactions between the NYOP retailer and service providers, while, at the same time, managing the bid acceptance rates in order to induce the desired consumer bidding behavior. Channel profit is impacted by how the retailer decides whether or not a given consumer bid will be accepted and, if so, which service provider is chosen to supply a unit of the product to the consumer. We devise a mechanism, the modified second-price auction, which maximizes channel profit. This paper was accepted by J. Miguel Villas-Boas, marketing.

Beyond Posted Prices: the Past, Present, and Future of Participative Pricing Mechanisms

Driven by the low transaction costs and interactive nature of the internet, customer participation in the price-setting process has increased. Today, platforms such as eBay have popularized online auctions on a global scale, Priceline has made headlines with its name-your-own-price (NYOP) business model, and Humble Bundle has enabled independent musicians and game developers to market their works through pay-what-you-want (PWYW) pricing. Advertising exchanges conduct several hundred million individual auctions per day to sell online advertising slots. The present paper contributes to the literature on participative pricing in three ways. First, we propose a definition of participative pricing mechanisms, as well as a useful taxonomy. Second, we discuss the current understanding by synthesizing conceptual and empirical academic literature. Third, we outline promising research questions with a key focus on the related behavioral aspects of buyers and sellers.

Encouraging information sharing to boost the name-your-own-price auction

During a name-your-own-price (NYOP) auction, buyers can learn a lot of knowledge from their socially connected peers. Such social learning process makes them become more active to attend the auction and also helps them make decisions on what price to submit. Combining an information diffusion model and a belief decision model, we explore three effects of bidders’ information sharing on the buyers’ behaviors and the seller profit. The results indicate that information sharing significantly increases the NYOP popularity and the seller profit. When enlarging the quality or quantity of information sharing, or increasing the spreading efficiency of the network topology, the number of attenders and the seller profit are increased significantly. However, the spread of information may make bidders be more likely to bid higher and consequently lose surplus. In addition, the different but interdependent influence of the successful information and failure information are discussed in this work.

Delegating pricing power to customers: Pay What You Want or Name Your Own Price?

Pay What You Want (PWYW) and Name Your Own Price (NYOP) are customer-driven pricing mechanisms that give customers (some) pricing power. Both have been used in service industries with high fixed costs to price discriminate without setting a reference price. Their participatory and innovative nature gives rise to promotional benefits that do not accrue to posted-price sellers. We explore the nature and effects of these benefits and compare PWYW and NYOP using controlled lab experiments. We show that PWYW is a very aggressive strategy that achieves almost full market penetration. It can be profitable if there are promotional benefits and if marginal costs are low. In contrast, NYOP can be used profitably also if marginal costs are high and if there are no such benefits. It reduces price competition and segments the market. In a second experiment, we generate promotional benefits endogenously. We show that PWYW monopolizes the follow-up market but fails to be profitable. NYOP is less successful in penetrating the market but yields much higher profits.

Beyond Posted Prices: The Past, Present, and Future of Participative Pricing Mechanisms

Driven by the low transaction costs and interactive nature of the internet, customer participation in the price-setting process has increased. Today, platforms such as eBay have popularized online auctions on a global scale, Priceline has made headlines with its name-your-own-price (NYOP) business model, and Humble Bundle has enabled independent musicians and game developers to market their works through pay-what-you-want (PWYW) pricing. Advertising exchanges conduct several hundred million individual auctions per day to sell online advertising slots. The present paper contributes to the literature on participative pricing in three ways. First, we propose a definition of participative pricing mechanisms, as well as a useful taxonomy. Second, we discuss the current understanding by synthesizing conceptual and empirical academic literature. Third, we outline promising research questions with a key focus on the related behavioral aspects of buyers and sellers.

Selling through Priceline? On the impact of name-your-own-price in competitive market

ABSTRACTPriceline.com patented the innovative pricing strategy, Name-Your-Own-Price (NYOP), that sells opaque products through customer-driven pricing. In this article, we study how competitive sellers with substitutable, non-replenishable goods may sell their products (i) as regular goods, through a direct channel at posted prices, and possibly at the same time (ii) as opaque goods, through a third-party channel that engages in NYOP. We establish a stylized model framework that incorporates three sets of stakeholders: two competing sellers, an intermediary NYOP firm, and a sequence of customers. We first characterize customers’ optimal purchasing/bidding decisions under various channel structures and then analyze corresponding sellers’ dynamic pricing equilibrium. We conduct extensive numerical studies to illustrate the impact of inventory and time on equilibrium prices, expected profit, and channel strategies. We find that the implications are highly dependent on channel structure (dual versus single). In particular, more inventory may reduce one’s expected profit under the dual structure, whereas this never happens when a seller only uses the direct channel. Interestingly, although competing sellers seldom benefit from the existence of NYOP channels, it is possible that one or both of the sellers adopt it in equilibrium. We identify timing, inventory levels, and channel opaqueness as key drivers for NYOP adoption and characterize equilibrium areas for each type of channel structure.

Online word of mouth: Implications for the name-your-own-price channel

We investigate the impact of increased technology-enabled consumer information sharing on the viability, optimal pricing, and profits of a name-your-own-price (NYOP) intermediary. The aim of our analysis is (a) to examine the NYOP's strategy when faced with information sharing about the threshold price above which offers are accepted; (b) to assess how consumers' access to pricing information influences NYOP's optimal pricing and profits; and (c) to examine conditions under which the NYOP pricing format may be more profitable for an intermediary compared to a posted-price format. We investigated these issues using an analytical model for an intermediary operating under two alternative business models: the merchant model and the agency model. Our analysis identifies regions in the parameter space where each sales format might be superior to the other. We find that the optimality of the NYOP format (relative to posted pricing) depends crucially on both the size of the informed consumers' market segment as well as the magnitude of bid shading, which limits the amount of surplus the NYOP intermediary is able to extract from uninformed consumers. Of particular note, we also find that (a) the NYOP does not benefit from frequently changing the threshold price in an attempt to hinder consumer learning of the bid-acceptance price level; (b) increased “word-of-mouth” transmission of information about its undisclosed threshold price does not unambiguously erode the NYOP retailer's profits; and (c) consumer valuations need not be positively correlated with haggling costs for the NYOP selling strategy to dominate posted-pricing format.

Information revelation and customer decision-making process of repeat-bidding name-your-own-price auction

Information revelation has become increasingly popular among name-your-own-price (NYOP) providers as a strategy to influence buyers' behavior and facilitate the transaction success rate in industrial practice. However, the mechanism underlying how disclosed information affects a bidder's decision-making process, as well as the consequent bidding results, remains unknown. In this study, we adopted an adapted dynamic choice model to simulate the bidders' decision process, which led to our proposal of a novel mechanism to explain how specific price information affects bidders' willingness to pay, expectation on threshold price and haggling willingness. The relationship model was then tested using real transaction data from the Shanghai Steel Transaction Center, one of the biggest steel spot transaction platforms in China that employs the NYOP pricing system. Our empirical results showed that a bidder's haggling behavior can be influenced by both personal transaction experience and revealed environmental information; therefore, sellers who intend to hinder haggling behavior can choose to reveal list price information that is more consistent with their bidders' internal reference price. Interestingly, we also found that haggling behavior may not always be harmful because it can enhance the bidders' net utility under certain conditions. Analysis of the combined effects on customer behavior—when more than one kind of relevant price information is disclosed—showed that additional market condition information (i.e., market price fluctuation) has a moderating effect on how current revealed list price information influences a bidder's decision. Thus, by very slightly increasing threshold price, sellers can facilitate haggling in order to increase customer utility in a volatile market. In summary, our study investigated an approach to understand a customer's behavior under different price information environments in the NYOP context. The results indicate that platform providers can implement various information revelation strategies to facilitate dynamic adjustment in the threshold price by sellers to maximize their profits.

Optimal remanufacturing strategies in name-your-own-price auctions with limited capacity

We study optimal pricing and production strategies faced by a manufacturer in a remanufacturing/manufacturing system. In the reverse channel, returns are collected under a name-your-own-price (NYOP) bidding mechanism. The manufacturer has a limited capacity to produce new and remanufactured products. We characterize the optimal decisions of the consumers and the manufacturer. We find that under the NYOP mechanism, the manufacturer׳s optimal strategies mainly depend on the bidding cost, the cost saving of remanufacturing, the production capacity, and the market scale. In addition, when remanufacturing needs more capacity than manufacturing , the manufacturer may adopt pure manufacturing strategy without remanufacturing. We also compare this mechanism with the traditional list-price mechanism and find that the manufacturer prefers the NYOP mechanism under the conditions of a low reverse market share, a high manufacturing cost, a sufficient capacity, or a low capacity requirement of remanufacturing. Numerical studies investigate the effect of key parameters on the manufacturer׳s profit and some managerial insights are obtained.

An examination of popular pricing and price framing techniques in the hospitality industry and directions for future research

Pricing in the hospitality industry is significantly different from pricing in the traditional consumer goods market. This paper focuses on price framing and customer reactions to different price presentation formats. Specifically, we highlight seven types of pricing strategies that are commonly used in the hospitality industry, namely price endings/odd pricing, discounts framing, best available rate (BAR), package/bundling, participative pricing strategy such as name-your-own-price (NYOP) and pay-what-you-want (PWYW), and flash deals/daily deals. We offer several propositions that might sparkle interest among hospitality researchers.

Optimal selling strategies when buyers name their own prices

This paper models a name-your-own-price (NYOP) retailer who allows buyers to initiate their retail interactions by describing a product and submitting a binding bid for it. The buyers have an outside option to buy the same good for a commonly known posted price that also acts as an informative upper bound on the cost the NYOP retailer faces. We conceptualize a selling strategy of such an NYOP retailer to be the probability that a buyer’s bid gets accepted. The selling strategy is a function of only the bid level; it does not depend on the particular realization of the retailer’s procurement cost. Using mechanism-design techniques, we characterize the optimal selling strategy and the equilibrium bidding function that best responds to it. We show that the optimal strategy implements the first-best ex-post optimal mechanism: for every cost realization, the retailer can make as much profit as he would if he could learn his cost first and use the optimal mechanism contingent on it. The complexity involved in credibly communicating an entire bid-acceptance function to buyers can make the first-best strategy impractical in some real-world markets, so we also analyze several simpler NYOP strategies: setting a minimum bid, charging a participation fee, and accepting all bids above cost. We find that under many scenarios, the minimum-bid strategy dominates the other simpler strategies and achieves a majority of the maximal profit improvement available from the first best strategy. However, NYOP retailers in thin markets can do better by charging participation fees than by setting minimum bids.

Delegating Pricing Power to Customers: Pay What You Want or Name Your Own Price?

Pay What You Want (PWYW) and Name Your Own Price (NYOP) are customer-driven pricing mechanisms that give customers (some) pricing power. Both have been used in service industries with high fixed capacity costs in order to appeal to additional customers by reducing prices without setting a reference price. In this experimental study we compare the functioning and the performance of these two pricing mechanisms. We show that both mechanisms can be successfully used to endogenously price discriminate. PWYW can be very successful if there is an additional promotional benefit to using PWYW and if marginal costs are not too high. PWYW is a very aggressive competitive strategy that achieves almost full market penetration. NYOP is a less aggressive strategy that can also be used if marginal costs are high. It reduces price competition and segments the market. Low valuation customers are more likely to use NYOP while high valuation customers prefer a posted price seller.