Book contents
- Frontmatter
- Contents
- Preface
- 1 Introduction to Pricing Techniques
- 2 Demand and Cost
- 3 Basic Pricing Techniques
- 4 Bundling and Tying
- 5 Multipart Tariff
- 6 Peak-load Pricing
- 7 Advance Booking
- 8 Refund Strategies
- 9 Overbooking
- 10 Quality, Loyalty, Auctions, and Advertising
- 11 Tariff-choice Biases and Warranties
- 12 Instructor and Solution Manual
- References
- Index
11 - Tariff-choice Biases and Warranties
Published online by Cambridge University Press: 06 July 2010
- Frontmatter
- Contents
- Preface
- 1 Introduction to Pricing Techniques
- 2 Demand and Cost
- 3 Basic Pricing Techniques
- 4 Bundling and Tying
- 5 Multipart Tariff
- 6 Peak-load Pricing
- 7 Advance Booking
- 8 Refund Strategies
- 9 Overbooking
- 10 Quality, Loyalty, Auctions, and Advertising
- 11 Tariff-choice Biases and Warranties
- 12 Instructor and Solution Manual
- References
- Index
Summary
The pricing techniques described throughout this book are based on the presumption that buyers always optimize their selections among the different payment plans and quality classes that are offered by one or more sellers. By optimizing, we mean that buyers operate according to well-defined objectives, such as expenditure minimization, maximization of value versus price, and minimization of expected price in case of uncertainty. Sadly enough for academic economists, consumers do not always behave this way. More precisely, consumers often end up selecting a payment plan, a brand, or a quality level that seems to violate consumers' objective functions as commonly assumed by economists.
The development of profitable marketing and pricing strategies requires an understanding of the manner in which consumers choose among alternatives. This chapter is devoted almost entirely to consumers who seem to be optimizing in ways different from those we have assumed so far in this book. The basic idea is that firms should often take into account what sometimes looks like an irrational behavior on the part of consumers and set their price menus accordingly. In fact, in many instances firms can actually take advantage of certain “odd” consumer behaviors and extract an even higher surplus from these consumers compared with the surplus that can be extracted from consumers who behave according to the way economists want them to behave.
- Type
- Chapter
- Information
- How to PriceA Guide to Pricing Techniques and Yield Management, pp. 359 - 376Publisher: Cambridge University PressPrint publication year: 2008