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ABSTRACT
KEYWORDS: inventory-dependent demand,
pricing, E-business, item availability, air or
hotel industry
INTRODUCTION
Booking or purchasing services via the internet
is common for various service industries,
including airlines, hotels, rental cars, theatres,
and restaurants. The pricing decision for
services, relative to manufacturing firms, is
particularly challenging for a variety of reasons
including difficulty in determining fixed and
operating costs, the intangible nature of
services, and perishability, which translates into
inability to inventory services. As for types of
pricing decisions, for instance, Talluri and van
Ryzin (2004, Chapter 1) present recommendations for how to set posted prices, how to price
across product categories, how to price over
time, and how to discount. Clearly, price
significantly influences consumers decisions.
& 2007 Palgrave Macmillan Ltd, 1476-6930 $30.00 Vol. 5, 4 305314 Journal of Revenue and Pricing Management 305
306 Journal of Revenue and Pricing Management Vol. 5, 4 305314 & 2007 Palgrave Macmillan Ltd, 1476-6930 $30.00
& 2007 Palgrave Macmillan Ltd, 1476-6930 $30.00 Vol. 5, 4 305314 Journal of Revenue and Pricing Management 307
pp; xjxxt pd pm ap bx
The total revenue P over period from t 0 to
t T is determined as,
tT
Z
pddt
t0
tT
Z
pm ap bxdt 2
t0
Demand function
We assume the following relationship between
inventory level x, retail price p, and demand
rate d
d m ap bx
2.0
1.5
Demand
2.5
1.0
0.5
0.0
2.0
1.6
1.2
0.8
0.4
0.0
Remaining Time
308 Journal of Revenue and Pricing Management Vol. 5, 4 305314 & 2007 Palgrave Macmillan Ltd, 1476-6930 $30.00
m a bx0
1 ebT
b
15
10
0.0
0.5
1.0
t (time)
p (price)
x (inventory)
20
l ebt p
x a=bebt 1 x0
m a bx0
p
a
Price/Inventory level
& 2007 Palgrave Macmillan Ltd, 1476-6930 $30.00 Vol. 5, 4 305314 Journal of Revenue and Pricing Management 309
Homogeneous scenario
Customers
Business segment
Price p
e-business
Normal item
availability offer
Leisure segment
Customized scenario
Customers
Price pB
e-business
Business segment
Price pL
Leisure segment
aB oaL
and
bB 4bL
and
L
bB 4b4b
b
0 1 ebT
mL a bx
b
cus
cus
Pcus
total PB PL
mB aB bB x0 1 ebB T
bB
mL aL bL x0 1 ebL T
bL
310 Journal of Revenue and Pricing Management Vol. 5, 4 305314 & 2007 Palgrave Macmillan Ltd, 1476-6930 $30.00
DP as
hom
DP Pcus
total Ptotal
qPhom
B
qb
Phom
L
Pcus
B
Pcus
L
bB bL
(1) Does the difference in total revenue between the two scenarios (ie, DP) change if a
segmentation share (ie, the ratio of mB and
mL) changes?
(2) How will the profitability of the customised model be undermined if segmenting
customers to two groups is not accurate
enough?
& 2007 Palgrave Macmillan Ltd, 1476-6930 $30.00 Vol. 5, 4 305314 Journal of Revenue and Pricing Management 311
29
450
Profit
28
28
350
27
300
Average profit
29
400
27
0
250
0
10
20
30
40
50
60
70
80
90
100
10
20
30
40
50
60
70
80
90
26
100
Homogeneous scenario
312 Journal of Revenue and Pricing Management Vol. 5, 4 305314 & 2007 Palgrave Macmillan Ltd, 1476-6930 $30.00
REFERENCES
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APPENDIX
A:1
qb
b2
qP =qb
A:2
Then, ((q2P)/(qb2)D(2(ma))/(b3))(1ebt)>0.
As a result, P is convex in b. &
A:3
Proof of Proposition 3
A:4
tT
Z
pddt
t0
aebt dt
tT
Z
A:5
into
m a bx0
a
(A.1),
t0
m a bx0
1 ebT
b
&
314 Journal of Revenue and Pricing Management Vol. 5, 4 305314 & 2007 Palgrave Macmillan Ltd, 1476-6930 $30.00
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