Profitability of the Name‐Your‐Own‐Price Channel in the Case of Risk‐Averse Buyers

In this paper, I study profitability of the name‐your‐own‐price channel (NYOP) in the presence of risk‐averse buyers. First, I provide conditions that guarantee that for the monopolistic seller the NYOP is more profitable than the posted price. Second, I consider a more competitive framework where buyers with rejected bids have access to an alternative option. I show that if under the posted‐price scenario there are unserved customers with low valuations, then NYOP is more profitable than the posted price. Finally, I study whether adding the posted‐price option to the NYOP will further increase the seller's profit and show that for the decreasing absolute risk‐aversion utility and a monopolistic seller it does not. In the presence of an alternative option, the answer depends on whether buyers consider the posted‐price option and the alternative option to be close substitutes or not. Adding the posted‐price option will increase the profit in the former case and will not in the latter.