Pricing and market segmentation using opaque selling mechanisms

Pricing and market segmentation using opaque selling mechanisms

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Article ID: iaor20141177
Volume: 233
Issue: 1
Start Page Number: 263
End Page Number: 272
Publication Date: Feb 2014
Journal: European Journal of Operational Research
Authors: ,
Keywords: pricing
Abstract:

In opaque selling certain characteristics of the product or service are hidden from the consumer until after purchase, transforming a differentiated good into somewhat of a commodity. Opaque selling has become popular in service pricing as it allows firms to sell their differentiated products at higher prices to regular brand loyal customers while simultaneously selling to non‐loyal customers at discounted prices. We develop a stylized model of consumer choice that illustrates the role of opaque selling in market segmentation. We model a firm selling a product via three selling channels: a regular full information channel, an opaque posted price channel and an opaque bidding channel where consumers specify the price they are willing to pay. We illustrate the segmentation created by opaque selling as well as compare optimal revenues and prices for sellers using regular full information channels with those using opaque selling mechanisms in conjunction with regular channels. We also study the segmentation and policy changes induced by capacity constraints.

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