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Journal of Revenue and Pricing Management

, Volume 18, Issue 3, pp 247–255 | Cite as

Differential pricing with consumers’ valuation uncertainty by a monopoly

  • Tuo WangEmail author
  • Michael Y. Hu
Research Article

Abstract

Traditional price discrimination of a monopoly depends on the knowledge of consumers’ valuation (as measured by willingness-to-pay or WTP). Information about consumer uncertainty on WTP, however, has not been considered explicitly as a way of segmentation for pricing purpose. Based on analytical modeling results at the individual level and simulations of survey data at the segment level, this paper proposes a new way of segmentation based on consumers’ valuation uncertainty (as measured by the range of WTP). Highest profit is attained when both valuation and valuation uncertainty are considered for optimal pricing. Moreover, compared to a segment with low valuation uncertainty, a segment with higher valuation uncertainty tends to have a flatter demand curve. Therefore, if the floor WTP has a non-negative correlation with the range of WTP, high valuation uncertainty leads to a higher optimal price as compared to low valuation uncertainty.

Keywords

Willingness-to-pay range Pricing Differential pricing Optimal pricing Segmentation Uncertainty 

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Copyright information

© Springer Nature Limited 2018

Authors and Affiliations

  1. 1.Department of Marketing and Entrepreneurship, College of Business AdministrationKent State UniversityKentUSA
  2. 2.Emeritus Bridgestone Endowed Chair of International BusinessKent State UniversityKentUSA

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