Principles of Pricing

by Vohra, Rakesh V.; Krishnamurthi, Lakshman

• ISBN13: 9781107010659
• ISBN10: 1107010659
• Format: Hardcover
• Copyright: 2012-03-31
• Publisher: Cambridge Univ Pr

Summary

Pricing drives three of the most important elements of firm success: revenue and profits, customer behavior and firm image. This book provides an introduction to the basic principles for thinking clearly about pricing. Unlike other marketing books on pricing, the authors use a more analytic approach and relate ideas to the basic principles of microeconomics. Rakesh Vohra and Lakshman Krishnamurthi also cover three areas in greater depth and provide more insight than may be gleaned from existing books: 1) the use of auctions, 2) price discrimination and 3) pricing in a competitive environment.

Author Biography

Rakesh V. Vohra is the John L. and Helen Kellogg Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management, Northwestern University. Lakshman Krishnamurthi is the Montgomery Ward Distinguished Professor of Marketing at the Kellogg School of Management, Northwestern University.

Table of Contents

Introduction	p. 1
Genesis	p. 4
Acknowledgments	p. 5
Buyer Behavior	p. 6
The Ultimatum	p. 6
Rational Buyer Model	p. 7
Warts	p. 9
Defense of the Rational Buyer Model	p. 11
Price Setting	p. 11
Key Points	p. 13
Estimating Price Response	p. 15
Economic Value to the Customer	p. 20
Five Steps	p. 24
Psychology and EVC	p. 30
Key Points	p. 35
Uniform Posted Price	p. 36
Margin versus Volume	p. 37
Where Demand Curves Come From	p. 38
Elasticity of Demand	p. 43
Margin and Elasticity	p. 49
Choosing Quantity	p. 52
The Relevance of Costs to Prices	p. 52
Break-Even Calculations	p. 53
The Sin of Cost-Pius Pricing	p. 57
Credibility	p. 61
Selling to One	p. 63
Many Products	p. 64
Negotiation	p. 67
Selling through an Intermediary	p. 67
First Vignette	p. 67
Second Vignette	p. 69
Adverse Selection	p. 74
The Price Waterfall	p. 74
Using the Price Waterfall Methodology	p. 76
Key Points	p. 78
Technical Aside	p. 79
Elasticity of Demand	p. 79
The Markup Formula	p. 79
Auctions	p. 81
The Benchmark Model	p. 84
English Ascending	p. 85
Sealed-Bid Second Price	p. 86
Sealed-Bid First Price	p. 86
Dutch Descending	p. 87
Revenue Comparison	p. 87
Auctions versus Posted Price	p. 89
Auctions versus Posted Price (Encore)	p. 90
An eBay Interlude	p. 92
Beyond Benchmark	p. 95
Risk	p. 95
Common Values	p. 96
Heterogeneous Bidders	p. 100
Violating the Rules	p. 100
Multiple Objects	p. 101
Key Points	p. 103
Technical Aside	p. 103
Sealed-Bid First Price	p. 103
Price Discrimination	p. 106
The Third Degree	p. 108
The Second Degree	p. 111
Versioning	p. 111
Bundling	p. 116
Revenue Management	p. 145
Gray Markets	p. 148
Legal Aspects of Price Discrimination	p. 152
Key Points	p. 153
Technical Aside	p. 155
Formulation of Example 15	p. 155
Analysis of Bundling	p. 156
Nonlinear Pricing	p. 157
Choosing a Protection Level	p. 158
Pricing and Competition	p. 159
The Pricing Dilemma	p. 159
Objections to the PD	p. 163
A Silver Lining	p. 168
Repetition	p. 169
Collusion and Signaling	p. 173
Predation	p. 175
Capacity	p. 178
Capacity Preemption	p. 181
Pricing Using the Supply Curve	p. 182
Differentiation	p. 185
Differentiation and Substitutes	p. 185
Loyalty Programs	p. 189
Competing with Complements	p. 194
Tale of the Inferior Entrant	p. 198
An Airline Interlude	p. 202
A TV Interlude	p. 204
Loyalty Discounts	p. 206
Retreating Brands	p. 209
Key Points	p. 210
Technical Aside	p. 211
Analysis of the Capacity Game	p. 211
Cournot Model	p. 212
Bertrand-Hotelling Model	p. 217
Bringing It All Together	p. 222
Appendix on Game Theory	p. 230
Representing the Game	p. 232
Simultaneous-Move Game	p. 232
Sequential Games	p. 234
Playing the Game	p. 235
Dominated Strategies and the Price Game	p. 236
Backward Induction and the Centipede Game	p. 242
Equilibrium	p. 243
References	p. 245
Index	p. 247
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