Two essays on pricing : incentive compatible pricing and price matching = 定價問題 : 激勵兼容定價和價格匹配策略

Research output: Other contributionThesis/Dissertation


Pricing is one of the most important concepts in the field of marketing. In this thesis, we study two different pricing strategies in two essays. In the first essay, we study the priority pricing problem in the context of an M/M/1 queue. In many services, customers are served according to some priority scheme instead of the first-come-first-served order because some customers are more “important”, i.e., delay-sensitive. The price mechanism is adopted to allocate priorities in the context of priority queueing. The appealing property of price mechanisms is that it decentralizes the resource allocation to individual customers. However, under a misaligned price mechanism, customers may reveal wrong types/priorities to the service provider, which results in inefficient resource allocation. Thus, the objective of the first essay is to design a price mechanism that motivates customers to be incentive-compatible, i.e., revealing true priority positions to the service provider. We consider self-interested customers submitting jobs to the service provider. Customers differ in their utilities of the service, the service rates, and unit delay costs. Customers choose and pay the corresponding priorities while submitting jobs to the service provider. The service provider aims to design a price mechanism that induces customers to reveal their true priority positions to maximize social welfare. We consider two levels of information requirement: the service provider knows the unit delay costs in a discrete set or an interval. We identify the dominant-strategy incentive compatible pricing scheme for each case: the price of each customer class consists of a compensation for his/her priority position choice, and a penalty for choosing lower priorities. In contrast to existing literature, under the proposed pricing scheme, truth telling is a dominant strategy for each class of customers regardless of the choice profile for priroirities of the other classes, and it can be implemented in a decentralized fashion. We also provide the surrogate social welfare equivalence theorem by identifying the virtual prices, i.e., any ex post incentive compatible pricing scheme results in the same ex ante expected surrogate social welfare. We also show our results are robust to more queueing settings.

In the second essay, we study the adoption decision on the price matching policy. Price matching, whereby a seller promises to refund the price difference to a customer who purchases a product when the customer finds a qualified lower price elsewhere, is commonly adopted by major retailers. The extensive literature typically argues that price matching is recommended to reduce inventory and to price discriminate customers. In this paper, we investigate the role of supply scarcity on the adoption decision of price matching with the potential advent of a competitor. By contrast, we demonstrate that supply scarcity is a blessing on adopting price matching: in the presence of supply scarcity, price matching does not hurt seller profit, and it can even improve seller profit under medium or high scarcity over no-price-matching. Ignoring the price matching policy under supply scarcity can lead to a significant profit loss. Our results are also robust to the case with endogenous capacity under a quadratic capacity cost. Thus, we uncover a new explanation on the adoption of price matching under supply scarcity in practice. Our findings also provide guidelines on how to manage price matching under supply scarcity.
Original languageEnglish
TypeDoctoral thesis
PublisherCity University of Hong Kong
Number of pages150
Publication statusPublished - 5 Aug 2022
Externally publishedYes


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