Uniform Price Research Articles

Managing Multirooming: Why Uniform Price Can Be Optimal for a Monopoly Retailer and Can Be Uniformly Lower

Retailers managing both online and offline channels have to decide whether to adopt the uniform (i.e., charging the same price online and offline) or dual (i.e., charging different prices online and offline) pricing strategy. This decision is made even more challenging as consumers are increasingly multirooming as they may search offline and then purchase online (showrooming) or the other way around (webrooming). In this paper, we develop an analytical model to examine such a decision. The model takes into consideration (1) consumers’ uncertainty about digital and nondigital product attributes, (2) consumers’ costs of showrooming as well as webrooming, and (3) the prevalence of costly product return. We show that uniform pricing can be optimal for a monopoly retailer even though consumers have different costs for shopping online versus offline and there is no intrinsic disutility against price discrimination by consumers. In addition, when the uniform price is optimal, it can be lower than both the offline and online prices under optimal dual pricing. This is because, compared with dual pricing, uniform pricing eliminates consumers’ uncertainty about the offline store’s price so that they are more likely to search the nondigital attribute at the offline store and buy the fitted product. Moreover, a relatively higher online price has to be used under dual pricing to encourage consumers to search offline for the purpose of reducing the product return costs. This paper was accepted by Dmitri Kuksov, marketing. Funding: This work was supported by the National Natural Science Foundation of China [Grants 71922008, 71972043, 72025102, and 72091211] and the Sci-Tech Innovation Foundation of School of Management at Fudan University [Grant 20210202]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.4849 .

One Price Fits All? On Inefficient Siting Incentives for Wind Power Expansion in Germany under Uniform Pricing

This paper evaluates investment incentives for wind power under two market designs: uniform and nodal pricing. An electricity system model is developed, that allows for investments in wind power capacities while carefully accounting for static transmission grid constraints. Wind power capacities are assumed to reach the same expansion target by 2030 under both market designs. The results show that the introduction of nodal prices leads to investments in wind power plants shifting to locations with lower wind yield. The amount of electricity fed into the grid from wind power plants, however, is higher under nodal pricing as curtailment is reduced by two-thirds. Furthermore, grid-optimal wind locations are shown to require higher direct subsidy payments but decrease yearly variable supply costs by 1.5% in 2030. Yet distributional effects present an obstacle to the introduction of a nodal pricing regime, with about 75% of German demand facing an increase in electricity costs of about 5%. To mitigate the distorted investment signals arising from uniform pricing regimes, restricting investments within grid expansion areas proves to be more promising than including latitude-dependent generator-component in the grid tariff design.

Macroeconomic Implications of Uniform Pricing

We compile a new database of grocery prices in Argentina. We find uniform pricing both within and across regions—i.e., prices almost do not vary within the stores of a chain. In line with uniform pricing, prices in stores of chains operating in one region react to changes in regional employment while prices in multiregion chains do not. Using a quantitative regional model with multiregion firms and uniform pricing, we find a one-half smaller elasticity of prices to a regional than an aggregate shock. This result highlights that some caution may be necessary when using regional shocks to estimate aggregate elasticities. (JEL D22, L11, L81, O14, O18, R32)

Game Model of Optimal Quality Experience Strategy for Internet of Vehicles Bandwidth Service Based on DAG Blockchain

With the rapid development of the Internet of Vehicles (IoV), vehicle networks will generate large amounts of data. Vehicle-to-Vehicle (V2V) data sharing can improve driving experience and quality of service, and Vehicle-to-Roadside unit (V2R) communication can improve road transport efficiency. A certain amount of bandwidth is consumed in the process of data sharing between V2V and V2R, and when multiple vehicles request data from the RSU at the same time, there may be network delay or congestion. Therefore, the vehicle obtains data faster by requesting high bandwidth from the RSU. However, since the bandwidth resources of RSUs are limited, optimal bandwidth service strategies need to be investigated. In addition, in order to ensure the safety, efficiency and traceability of data sharing between V2V and V2R, a blockchain-supported IoV needs to be established. Therefore, we design a blockchain-based framework for V2V and V2R transaction framework that integrates DAG blockchain and modern cryptography. The framework ensures security and scalability during the execution of data exchange and completion of bandwidth transactions, improves the service quality of vehicles and realizes decentralized payment. In this work, a two-stage Stackelberg game is established under two pricing schemes of uniform pricing and discriminatory pricing to jointly maximize the benefits of vehicles and RSUs. In Stage I, the RSU sets the corresponding bandwidth service and pricing strategy. In Stage II, the vehicle decides the service demand according to the observed pricing strategy. The optimal bandwidth allocation and pricing strategy between the RSU and the vehicle is determined through the game of both parties, and the existence and uniqueness of the two-stage subgame Nash equilibrium is analyzed by applying backward induction. The correctness of the model is verified by experiments, and the comparative analysis shows that the proposed model has high throughput.

Approximations for Indivisible Concave Allocations with Applications to Nash Welfare Maximization

We study a general allocation setting where agent valuations are concave additive. In this model, a collection of items must be uniquely distributed among a set of agents, where each agent-item pair has a specified utility. The objective is to maximize the sum of agent valuations, each of which is an arbitrary non-decreasing concave function of the agent's total additive utility. This setting was studied by Devanur and Jain (STOC 2012) in the online setting for divisible items. In this paper, we obtain both multiplicative and additive approximations in the offline setting for indivisible items. Our approximations depend on novel parameters that measure the local multiplicative/additive curvatures of each agent valuation, which we show correspond directly to the integrality gap of the natural assignment convex program of the problem. Furthermore, we extend our additive guarantees to obtain constant multiplicative approximations for Asymmetric Nash Welfare Maximization when agents have smooth valuations. This algorithm also yields an interesting tatonnement-style interpretation, where agents adjust uniform prices and items are assigned according to maximum weighted bang-per-buck ratios.

Dual-channel ticketing and pricing strategies in cruise revenue management

ABSTRACT To address cruise companies’ revenue loss caused by over-reliance on indirect channels for ticket distribution, we design a dual-channel pricing policy that includes dynamic horizontal and vertical pricing regimes aiming to maximizing cruise companies’ revenue. In the horizontal pricing regime, cruise companies and travel agencies offer uniform prices to consumers dynamically. In the vertical pricing regime, cruise companies provide dynamic commissions to travel agencies based on their sales performances. In view of the dynamic customer arrivals and uncertain demand, we model the dynamic dual-channel pricing decisions as a Markov decision process, and solve the model by means of a reinforcement learning method. Our computational results show that dual-channel pricing policies generated by our method outperform the classic Expected Marginal Seat Revenue method, which has been widely used in similar industries such as airlines for revenue management. In addition to the various features of dual-channel in ticket distribution, our model also takes into account customers’ onboard consumptions, which is a critical source of revenue in cruise industry but has never been considered in the literature. As a result, our model and computational results provide insightful implications for cruise revenue management.

Dynamic pricing strategies: Uniform or discrimination for multi-channel retailing under platform-based supply chain competition

Most retailers have implemented multi-channel retailing strategies with the development of the platform economy. The existing literature ignores the effects of the complex competition between the strong-brand and weak-brand platform-based supply chains applying multi-channel retailing and consumers’ cross-brand-channel behavior on dynamic pricing (uniform vs. discrimination pricing). This study discusses the pricing dilemma in a more complex competition and fills the gap by modeling a 2*2 dynamic pricing Nash game between two multi-channel retailing supply chains. Our results show that when the competitor chooses uniform or discrimination pricing, the retailers should apply the same pricing strategy as the competitor. In addition, we find that uniform pricing vs. uniform pricing and discrimination pricing vs. discrimination pricing are Nash equilibrium results. Our analysis suggests that the scenario uniform vs. uniform pricing brings the highest profits to both supply chains and the strong-brand retailer but not to the weak-brand retailer.

Behavior‐based price discrimination in the domestic and international mixed duopoly

AbstractThis study investigates mixed markets in which a social welfare‐maximizing public firm and a private firm engage in behavior‐based price discrimination (BBPD). A total of two cases are considered: one where domestic shareholders completely own the private firm and one where foreign shareholders completely own it. In the domestic mixed duopoly, BBPD is irrelevant from the viewpoint of domestic social welfare. This is because poaching does not occur. In the international mixed duopoly, BBPD improves domestic social welfare, as BBPD reduces the outflow of the private firm's profit to foreign shareholders. In both cases, privatization is more undesirable under BBPD than uniform pricing.

Market expansion and the scope of mass customization

We consider a market in which two firms with their own customer base have the possibility to expand their business by customization to serve new customer segments. In a two-dimensional model, we examine the optimal scope of customization - that is, whether not to customize, to customize only one dimension, or to customize both dimensions - by analyzing the trade-off between market expansion and expected competition. Depending on the size of their own home markets, we show that in most market constellations one firm fully customizes its standard product whereas the other firm customizes maximally only one dimension. If price discrimination for customized products is possible, firms’ incentives to customize increase. However, whereas customization under uniform pricing is always Pareto improving for both firms, it might be Pareto inferior under price discrimination. From a consumer perspective, the situation is reversed. Although full customization implies that customers’ preferences are perfectly matched, they do not necessarily benefit from customization under uniform pricing, whereas price discrimination is always a Pareto improvement for customers.

Location choice with asymmetric data in the Hotelling model

AbstractThis paper analyzes the location choices of firms in the Hotelling model, in which one firm has consumer data and can practice price discrimination, while the other firm without data can only set uniform price. The equilibrium results show medium differentiation. The location choices of firms can alleviate the inhibition of data asymmetry on competition and increase consumer surplus. And we consider the consumers' transportation costs as an exponential function of distance. When this exponent increases, horizontal differentiation increases, but market prices fall, benefiting consumers.

Third‐Degree Price Discrimination in Oligopoly when Markets are Covered*

We analyze oligopolistic third‐degree price discrimination relative to uniform pricing when markets are covered. Pricing equilibria are critically determined by supply‐side features such as the number of firms and their marginal cost differences. It follows that each firm's Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm's relative margins under discriminatory pricing. Uniform pricing then lowers average prices and raises consumer surplus. We can calculate the gain in consumer surplus and loss in firms' profits from uniform pricing based only on the market data of the discriminatory equilibrium (i.e., prices and quantities).

Energy Trading in Local Electricity Markets With Behind-the-Meter Solar and Energy Storage

Distributed energy resources, especially residential behind-the-meter photovoltaics (BTM PV), have been playing increasingly important roles in modern smart grids. Residential netload, which is closely tied with customers' gross load consumption and weather, is usually the only data available for the market operator in a local electricity market (LEM). This paper seeks to design customized prices for an LEM that consists of an agent, BTM PV, energy storage (ES), prosumers, and consumers. The LEM agent who owns a community-scale ES system is responsible for operating the market, determining the internal price, and facilitating the energy sharing within the community. A hierarchical energy trading infrastructure is considered, where the LEM agent acts as the mediator between the external utility grid and customers. A two-stage decision-making framework, including both look-ahead ES scheduling and real-time customized price design, is developed for the agent's profit maximization. Besides, the impacts of netload forecasting and BTM PV disaggregation are also investigated. The customer's consumption behavior is modeled as a utility maximization problem. Compared with the benchmark uniform price design, it is found that the customized pricing scheme could further improve the LEM agent's profit by 4% to 130%, depending on the weather conditions and seasonal load patterns.

Optimal self-scheduling for a multi-energy virtual power plant providing energy and reserve services under a holistic market framework

This paper addresses a self-scheduling model for a multi-energy virtual power plant (MEVPP) to optimize its day-ahead energy and reserve schedules considering the participation in joint markets. The coordination of energy and reserve services is realized by developing a holistic market framework. MEVPP trades electric energy in day-ahead market and natural gas in natural gas market under the uniform price scheme. MEVPP provides reserve in ancillary service market under the pay-as-bid scheme considering uncertain market clearing prices. Reserve regulations are modeled for the reserve quality provided by MEVPP. MEVPP can sign contracts in capacity market for capacity adequacy. The electricity and natural gas imbalance payments and unsupplied reserve penalty resulting from uncertain PV generation are calculated in real-time. The case studies, based on the practical data from Italian power exchange and transmission system operator, show the economic achievements of MEVPP with multiple markets participation. The advantages of multi-energy coupling in improving flexibility and economic profit are numerically analyzed. MEVPP is proven to be a promising reserve service supplier for TSO. Because through reasonable regulations, the reserve quality of MEVPP can be improved with little impact on its total cost.

Sourcing diversification: Strategy selection, sourcing allocation and brand power

The supply of power batteries is monopolised by a few suppliers, resulting in high purchasing costs for electric vehicle manufacturers (EVMs). Hence, some EVMs have implemented diversified sourcing strategies to seek purchase concessions and reduce their dependence on battery suppliers. Motivated by the sourcing strategies of EVMs, we develop a game-theoretic model to investigate the optimal procurement strategies of manufacturers with different brand power. The model consists of a primary supplier, an alternative supplier, and two competing manufacturers, wherein the focal manufacturer has the option of implementing dual sourcing or partial outsourcing through sourcing allocation, whereas the rival manufacturer only sources from the primary supplier. Specifically, we first study the focal manufacturer’s three procurement strategies under the primary supplier’s uniform pricing: single sourcing (the benchmark), dual sourcing and partial outsourcing. Then, we examine the primary supplier’s strategic response to the manufacturer’s sourcing diversification: maintaining uniform pricing or switching to differential pricing. By analysing the equilibrium profits, we find that compared with the situation under single sourcing, both the primary supplier and the focal manufacturer may obtain higher profits under dual sourcing or partial outsourcing. However, with an increase in the focal manufacturer’s order proportion, the primary supplier’s profit may decrease; and the focal manufacturer’s diversified sourcing strategy may hurt all the supply chain players. Furthermore, we show that when the primary supplier considers switching to differential pricing, the focal manufacturer tends to abandon the diversified sourcing and adopt single sourcing.

Pass-through of Electric Vehicle Subsidies: A Global Analysis

We investigate the pass-through of electric vehicle (EV) subsidies in 13 countries that account for 95 percent of global EV sales from 2013 to 2020. Our results indicate high pass-through rates of 70-80 percent on average. Pass-through is highest for global firms that sell the same EV models across multiple countries, consistent with uniform pricing by these firms, as well as avoidance of third-party arbitrage. We find suggestive evidence that pass-through is higher for tax incentives than for direct consumer subsidies.

Global climate policy with differentiated carbon price floors

ABSTRACT We use a state-of-the-art global general equilibrium model to quantify the effects of an International Carbon Price Floor (ICPF) proposal for the coordination of global climate policy. With the ICPF proposal, countries would implement a carbon price floor that is differentiated according to their level of development. The price floor could be implemented by an actual carbon price or other policies with equivalent stringency. Implementing such a joint effort would be a big step towards aligning global emissions with the Paris Agreement. The study highlights three main findings. First, the ICPF is progressive in terms of emission reductions and demands considerably more effort from high-income countries (HICs). Unlike proposals based on equity principles, however, it requires neither extremely high emission reductions from HICs nor massive financial transfers. Second, the differentiated carbon prices cost only an additional 0.3 percent of global GDP compared to a global uniform carbon price. Third, the ICPF can be as effective as border carbon adjustment (BCA) mechanisms at preserving competitiveness of HICs despite the differentiation in carbon price floors. This means, there would be no need for BCA with an ICPF. Compared to a BCA, HICs can avoid the administrative burden and low-income countries (LICs) will not face the cost of BCA. As a first step to global climate policy, a sectoral ICPF for the EITE sector could be introduced. It would address competitiveness concerns almost as well as the full ICPF. Key policy highlights An International Carbon Price Floor (ICPF), with carbon price floors differentiated by development level, would incur only small economic costs compared to baseline economic growth. The ICPF would allow for international burden sharing, with HICs incurring higher cost than middle – and low-income countries. The ICPF reduces distortions to competitiveness as much as BCA, so that no BCA would be necessary. A ‘sectoral ICPF’ in energy-intensive and trade-exposed sectors would be effective against leakage and loss in competitiveness and would thus be an attractive alternative to border carbon adjustment.

Serum: differential pricing of the Covid-19 vaccine

Learning outcomes The learning outcomes of this study are as follows: 1. the benefits of differential pricing over uniform pricing; 2. the differences between second- and third-degree price discrimination; 3. the rationale for charging different prices for segments having different willingness to pay; and 4. how different prices for the same product can lead to perceptions of unfairness and how companies might manage such an issue. Case overview/synopsis This case outlines the decisions that Adar Poonawalla, the CEO of Serum Institute of India (Serum), had to make in late April 2021 concerning its pricing for the COVID-19 (Covid) vaccine. Serum was the world’s largest manufacturer of vaccines, and its Covishield vaccine had received regulatory approval, but faced an unusual challenge and opportunity. In most countries, governments had procured Covid vaccines from manufacturers and then delivered the vaccines to consumers free of cost. But in India, there was a three-tier pricing system. While the Government of India had committed to free vaccines in government-run public hospitals, it also allowed vaccine makers to directly sell vaccines to state governments, as well as private hospitals, who were at liberty to charge consumers for the vaccines. This created an interesting pricing dilemma for Serum: as different customers had different willingness to pay, should Serum use differential pricing? Would such a tiered pricing system be considered fair? How many different price points should Serum maintain? By exploring these and related decisions that Poonawalla had to make, the case is intended to teach price discrimination. Complexity academic level The case is intended for graduate-level courses in marketing, pricing and economics. This case illustrates the principles of differential pricing/price discrimination. More specifically, it highlights pricing strategies motivated by second- and third-degree price discrimination in an emerging market’s health-care context. From the information in the case, the student can learn to apply the concepts of second- and third-degree price discrimination in marketing. After working through the case and assignment questions, instructors will be able to help students understand the following concepts: Teaching objective 1: the benefits of differential pricing over uniform pricing. Teaching objective 2: the differences between second- and third-degree price discrimination. Teaching objective 3: the rationale for charging different prices for segments having different willingness to pay. Teaching objective 4: how different prices for the same product can lead to perceptions of unfairness and how companies might manage such an issue. Supplementary material Teaching notes are available for educators only. Subject code CSS 8: Marketing

Uniform pricing and subsidy coordination mechanism in a two‐tier healthcare system under a co‐payment policy

AbstractRecently, the lengthy waiting time in public hospitals (called the public system) under the free healthcare policy has become a serious problem. To address this issue, motivated by the Japanese healthcare system, this paper investigates a two‐tier co‐payment healthcare system under a uniform pricing and subsidy coordination mechanism. In such a setting, the public system and the private system (i.e., the private hospitals) compete for market share with different objectives, whereas the government uniformly sets the service price and the subsidy rate to maximize social welfare under a total budget constraint. Compared with two free healthcare policy cases implemented in the Canadian and Australian healthcare systems respectively in terms of social welfare, the results show that when the market demand (or the patient service quality sensitivity) is sufficiently high (sufficiently low), the uniform pricing and subsidy coordination mechanism is better and worse otherwise; and when the patient's waiting sensitivity (or the total government budget) is in an appropriate middle range (sufficiently low or high), the mechanism can outperform than the free policy cases.

On Point Predictions and Reference Dependence in Behavior-Based Pricing Experiments


 
 
 It has been shown that the comparative static results of two-period behavior-based pricing models hold in laboratory experiments, while point predictions do not. This study aims to check whether these findings replicate and to evaluate why observed prices deviate from point predictions. We report observed prices in conformity with point predictions through: (1.) a uniform pricing benchmark, (2.) a replication of a behavior-based pricing experiment, and (3.) a follow-up experiment in which we consider the second period disjointed from the first period. By disjoining the two periods, we show that reference dependence toward first-period prices shifts the second-period pricing behavior of participants upwards. In a post hoc analysis, we show that considering consumers' myopic instead of strategic explains a downward shift in first-period prices and rationalizes prior experimental findings. Volatile price levels affect price-based welfare measures – such as seller profits and total customer costs. We show that transport costs are a robust welfare measure that alleviates the impact of distorted prices. Ultimately, our findings are relevant for the design and assessment of multi-period pricing experiments.
 
 

StableFees: A Predictable Fee Market for Cryptocurrencies

Blockchain-based cryptocurrencies must solve the problem of assigning priorities to competing transactions. The most widely used mechanism involves each transaction offering a fee to be paid once the transaction is processed, but this discriminatory price mechanism fails to yield stable equilibria with predictable prices. We propose an alternate fee setting mechanism, StableFees, that is based on uniform price auctions. We prove that our proposed protocol is free from manipulation by users and miners as the number of users and miners increases and show empirically that gains from manipulation are small in practice. We show that StableFees reduces the fees paid by users and reduces the variance of fee income to miners. Data from December 2017 show that, if implemented, StableFees could have saved Bitcoin users $272,528,000 USD in transaction fees while reducing the variance of miner’s fee income, on average, by a factor of 7.4. We argue that our fee protocol also has important social welfare and environmental benefits. This paper was accepted by Agostino Capponi, Special Section of Management Science: Blockchains and Crypto Economics. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4735 .