Pricing of flexible products
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The pricing of flexible products is a new price discrimination practice that can enable firms to increase revenues under capacity considerations. A flexible product is defined as a good or service with at least one product attribute not fully specified at the time of the purchase, leaving the seller with at least two alternatives for the final product design and the ability to assign consumers to one of these alternatives at a later date. Flexible products enable sellers to better utilized capacity, as well as, to segment consumers and price discriminate according to different levels of flexibility. We empirically analyze consumer purchase behavior for flexible products based on a large field study of a low-cost airline. At this low-cost airline, consumers can select the level of flexibility of the flexible product. We identify the drivers of purchase behavior by analyzing the impact of consumers’ flexibility and search behavior and the price discount of the flexible ticket. Further, we estimate the revenue and profit effects of flexible products.
KeywordsFlexible products Interactive pricing Customized pricing Revenue management
JEL ClassificationM31 M15
We gratefully acknowledge helpful feedback from Marc Fischer, as well as the participants of AGIFORS Annual Symposium 2005, Informs Annual Meeting 2007, EMAC 2008 and Informs Marketing Science Conference 2008.
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