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Setting Prices on Priceline

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  • Chris K. Anderson

    (School of Hotel Administration, Cornell University, Ithaca, New York 14853)

Abstract

Priceline is best known for its name-your-own-price format, in which consumers bid for services but not for service providers. Because Priceline serves as an opaque selling mechanism, it attracts price-conscious consumers. Sellers also benefit because they can price into multiple market segments without worrying that they are diluting revenue they might receive from customers who are willing to use conventional selling channels and pay more. A firm that releases its inventory to Priceline must manage the trade-off of pricing its inventory too low (and forgoing revenue) versus pricing it too high and forgoing a sale. In this paper, we outline the mechanism that Priceline uses to determine if customer bids are successful and, given this mechanism, establishes optimal prices and inventory allocations for Kimpton Hotels.

Suggested Citation

  • Chris K. Anderson, 2009. "Setting Prices on Priceline," Interfaces, INFORMS, vol. 39(4), pages 307-315, August.
    • Handle: RePEc:inm:orinte:v:39:y:2009:i:4:p:307-315
    DOI: 10.1287/inte.1090.0447
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    References listed on IDEAS

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    Cited by:

    1. Robert Zeithammer, 2015. "Optimal selling strategies when buyers name their own prices," Quantitative Marketing and Economics (QME), Springer, vol. 13(2), pages 135-171, June.
    2. Nadia El-Nemr & Béatrice Canel-Depitre & Atour Taghipour, 2017. "Determinants Of Hotel Room Rates," Post-Print hal-02332636, HAL.
    3. Scott Fay & Robert Zeithammer, 2017. "Bidding for Bidders? How the Format for Soliciting Supplier Participation in NYOP Auctions Impacts Channel Profit," Management Science, INFORMS, vol. 63(12), pages 4324-4344, December.
    4. Krämer, Florentin & Schmidt, Klaus M. & Spann, Martin & Stich, Lucas, 2017. "Delegating pricing power to customers: Pay What You Want or Name Your Own Price?," Journal of Economic Behavior & Organization, Elsevier, vol. 136(C), pages 125-140.
    5. Anderson, Chris K. & Xie, Xiaoqing, 2014. "Pricing and market segmentation using opaque selling mechanisms," European Journal of Operational Research, Elsevier, vol. 233(1), pages 263-272.
    6. Rice, Dan Hamilton & Fay, Scott A. & Xie, Jinhong, 2014. "Probabilistic selling vs. markdown selling: Price discrimination and management of demand uncertainty in retailing," International Journal of Research in Marketing, Elsevier, vol. 31(2), pages 147-155.
    7. Zhang, Yi & Hua, Guowei & Cheng, T.C.E. & Zhang, Juliang & Fernandez, Vicenc, 2020. "Risk pooling through physical probabilistic selling," International Journal of Production Economics, Elsevier, vol. 219(C), pages 295-311.
    8. David Post & Martin Spann, 2012. "Improving Airline Revenues with Variable Opaque Products: “Blind Booking” at Germanwings," Interfaces, INFORMS, vol. 42(4), pages 329-338, August.
    9. Sasanuma, Katsunobu & Hibiki, Akira & Sexton, Thomas, 2022. "An opaque selling scheme to reduce shortage and wastage in perishable inventory systems," Operations Research Perspectives, Elsevier, vol. 9(C).
    10. Fay, Scott & Lee, Seung Hwan (Shawn), 2015. "The role of customer expectations in name-your-own-price markets," Journal of Business Research, Elsevier, vol. 68(3), pages 675-683.
    11. Zhang, Yi & Hua, Guowei & Wang, Shouyang & Zhang, Juliang & Fernandez, Vicenc, 2018. "Managing demand uncertainty: Probabilistic selling versus inventory substitution," International Journal of Production Economics, Elsevier, vol. 196(C), pages 56-67.
    12. Bernhardt, Martin & Spann, Martin, 2010. "An Empirical Analysis of Bidding Fees in Name-your-own-price Auctions," Journal of Interactive Marketing, Elsevier, vol. 24(4), pages 283-296.
    13. Martin Spann & Robert Zeithammer & Gerald Häubl, 2010. "Optimal Reverse-Pricing Mechanisms," Marketing Science, INFORMS, vol. 29(6), pages 1058-1070, 11-12.
    14. Robert Zeithammer, 2015. "Optimal selling strategies when buyers name their own prices," Quantitative Marketing and Economics (QME), Springer, vol. 13(2), pages 135-171, June.

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