| Abstract: | We have asked this question to seasoned practitioners and leading academics and the answer is often "I don't know, but my intuition is that if the seller is benefiting from dynamic pricing then it may be because more surplus is being extracted from consumers." This zero-sum game perception may even prevent the use of dynamic pricing if companies feel that it may hurt their image in the eyes of consumers. It was the expression of this sentiment by an industry executive that lead us to this investigation. We asked ourselves: Do consumers prefer random prices? In other words, is the consumer surplus a decreasing convex function of price? Is the price an increasing concave function of cost? Is the composite function a decreasing convex function of cost? And if this is true, is dynamic pricing (which responds to random changes in marginal cost of capacity), better than fixed pricing for consumers? We show that the answers are mostly yes, so dynamic pricing is win-win most of the time, but there are some exceptions as we will describe in our talk. |
| Date: | 20 April 2016 |
| Time: | 4:00pm - 5:00pm |
| Speaker: | Prof. Guillermo Gallego |
| Venue: | Room 7-207, 7/F, Academic 3 |
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