Beyond Posted Prices: the Past, Present, and Future of Participative Pricing Mechanisms

Abstract

Driven by the low transaction costs and interactive nature of the internet, customer participation in the price-setting process has increased. Today, platforms such as eBay have popularized online auctions on a global scale, Priceline has made headlines with its name-your-own-price (NYOP) business model, and Humble Bundle has enabled independent musicians and game developers to market their works through pay-what-you-want (PWYW) pricing. Advertising exchanges conduct several hundred million individual auctions per day to sell online advertising slots. The present paper contributes to the literature on participative pricing in three ways. First, we propose a definition of participative pricing mechanisms, as well as a useful taxonomy. Second, we discuss the current understanding by synthesizing conceptual and empirical academic literature. Third, we outline promising research questions with a key focus on the related behavioral aspects of buyers and sellers.

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Notes

  1. 1.

    https://www.manheim.com/publicauctions/sales.do

  2. 2.

    At this auction, passengers with a ticket can submit a (binding) bid for an upgrade (if available) until 72 h prior to departure. Lufthansa informs bidders 24–36 h prior to departure whether their bid was accepted (http://www.lufthansa.com/de/de/myOffer). Other airlines also use this mechanism (http://www.plusgrade.com).

  3. 3.

    Priceline has a patent on this mechanism in the USA. Although this patent does not extend to Europe, trademark rights do, which may be one reason other companies are hesitant to adopt the mechanism.

  4. 4.

    See http://pages.ebay.com/help/sell/second_chance_offer.html: “When you send a Second Chance Offer, you give the bidder the chance to buy the item at a Buy It Now price equal to their last bid amount. It’s up to the buyer to decide whether to accept the offer.”

  5. 5.

    As noted in Section 2, many B2B auctions are procurement reverse auctions in which the product to be sold is, for example, a bridge-building contract offered by a state government (the seller), with contractors playing the roles of buyers.

  6. 6.

    In most local (and B2B) auctions, the seller (buyer) has an option to reject a high bid when a secret reserve price is used. However, in eBay auctions, the seller needs to prespecify the level of the reserve, and the outcome is binding as soon as the secret reserve is met.

  7. 7.

    Casual empiricism aligns nicely with this finding. For instance, recently, several car manufacturers instituted “no haggling” policies at dealerships to attract the business of customers, primarily women, who are put off by the thought of bargaining with a car salesperson.

  8. 8.

    Note our concept of utility from process is not unique in the domain of pricing. For example, considerable research has investigated the perceptions of fairness in response to the pricing actions of sellers. Importantly, fairness typically has two dimensions: one related to the outcome (the price level) and another related to the process (how the price came to be) [16].

  9. 9.

    US B2B e-commerce sales are expected to top $1 trillion by 2019; see Forrester Research B2B e-Commerce Forecast, 2015 to 2020 at https://www.pepperi.com/wholesale-ecommerce/.

  10. 10.

    As noted in Section 2, a B2B procurement reverse auction can also be viewed as an auction wherein the product to be sold is a contract offered by the procuring company or government (the seller), with suppliers playing the roles of buyers.

  11. 11.

    From https://stacksocial.com/sales/pay-what-you-want-b2b-designer-bundle, accessed on 12/1/2016.

  12. 12.

    In penny auctions, bidders need to pay a fee for each bid placed in an auction (websites currently in operation are Beezid.com, QuiBids.com, BidSauce.com, DealDash.com, and HappyBidDay.com).

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Correspondence to Martin Spann.

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Based on the Session “Beyond Posted Prices: Customer-Driven Pricing Mechanisms” at the 10th Choice Symposium

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Spann, M., Zeithammer, R., Bertini, M. et al. Beyond Posted Prices: the Past, Present, and Future of Participative Pricing Mechanisms. Cust. Need. and Solut. 5, 121–136 (2018). https://doi.org/10.1007/s40547-017-0082-y

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Keywords

  • Auction
  • Name-your-own-price
  • Pay-what-you-want
  • Bargaining
  • Outcome and process utility
  • Taxonomy