Article ID: | iaor20115744 |
Volume: | 59 |
Issue: | 2 |
Start Page Number: | 498 |
End Page Number: | 506 |
Publication Date: | Mar 2011 |
Journal: | Operations Research |
Authors: | Secomandi Nicola, Bhandari Atul |
Keywords: | programming: markov decision, yield management |
Static game‐theoretic models of bilateral bargaining assume that the seller knows his valuation for the item that is up for sale; that is, how the seller may determine this quantity is exogenous to these models. In this paper, we develop and analyze a stylized Markov decision process that endogenizes the seller's computation of his marginal inventory valuation in an infinite‐horizon revenue management setting when each sale occurs according to a given bilateral bargaining mechanism. We use this model to compare, both analytically and numerically, the seller's performance under four basic bilateral bargaining mechanisms with a tractable information structure. These comparisons provide insights into the seller's performance under the following trading arrangements: buyer and seller posted pricing, negotiated pricing, and rule‐based pricing.