Principles of Pricing

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  • Format: Hardcover
  • Copyright: 2012-03-31
  • Publisher: Cambridge Univ Pr
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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

Introductionp. 1
Genesisp. 4
Acknowledgmentsp. 5
Buyer Behaviorp. 6
The Ultimatump. 6
Rational Buyer Modelp. 7
Wartsp. 9
Defense of the Rational Buyer Modelp. 11
Price Settingp. 11
Key Pointsp. 13
Estimating Price Responsep. 15
Economic Value to the Customerp. 20
Five Stepsp. 24
Psychology and EVCp. 30
Key Pointsp. 35
Uniform Posted Pricep. 36
Margin versus Volumep. 37
Where Demand Curves Come Fromp. 38
Elasticity of Demandp. 43
Margin and Elasticityp. 49
Choosing Quantityp. 52
The Relevance of Costs to Pricesp. 52
Break-Even Calculationsp. 53
The Sin of Cost-Pius Pricingp. 57
Credibilityp. 61
Selling to Onep. 63
Many Productsp. 64
Negotiationp. 67
Selling through an Intermediaryp. 67
First Vignettep. 67
Second Vignettep. 69
Adverse Selectionp. 74
The Price Waterfallp. 74
Using the Price Waterfall Methodologyp. 76
Key Pointsp. 78
Technical Asidep. 79
Elasticity of Demandp. 79
The Markup Formulap. 79
Auctionsp. 81
The Benchmark Modelp. 84
English Ascendingp. 85
Sealed-Bid Second Pricep. 86
Sealed-Bid First Pricep. 86
Dutch Descendingp. 87
Revenue Comparisonp. 87
Auctions versus Posted Pricep. 89
Auctions versus Posted Price (Encore)p. 90
An eBay Interludep. 92
Beyond Benchmarkp. 95
Riskp. 95
Common Valuesp. 96
Heterogeneous Biddersp. 100
Violating the Rulesp. 100
Multiple Objectsp. 101
Key Pointsp. 103
Technical Asidep. 103
Sealed-Bid First Pricep. 103
Price Discriminationp. 106
The Third Degreep. 108
The Second Degreep. 111
Versioningp. 111
Bundlingp. 116
Revenue Managementp. 145
Gray Marketsp. 148
Legal Aspects of Price Discriminationp. 152
Key Pointsp. 153
Technical Asidep. 155
Formulation of Example 15p. 155
Analysis of Bundlingp. 156
Nonlinear Pricingp. 157
Choosing a Protection Levelp. 158
Pricing and Competitionp. 159
The Pricing Dilemmap. 159
Objections to the PDp. 163
A Silver Liningp. 168
Repetitionp. 169
Collusion and Signalingp. 173
Predationp. 175
Capacityp. 178
Capacity Preemptionp. 181
Pricing Using the Supply Curvep. 182
Differentiationp. 185
Differentiation and Substitutesp. 185
Loyalty Programsp. 189
Competing with Complementsp. 194
Tale of the Inferior Entrantp. 198
An Airline Interludep. 202
A TV Interludep. 204
Loyalty Discountsp. 206
Retreating Brandsp. 209
Key Pointsp. 210
Technical Asidep. 211
Analysis of the Capacity Gamep. 211
Cournot Modelp. 212
Bertrand-Hotelling Modelp. 217
Bringing It All Togetherp. 222
Appendix on Game Theoryp. 230
Representing the Gamep. 232
Simultaneous-Move Gamep. 232
Sequential Gamesp. 234
Playing the Gamep. 235
Dominated Strategies and the Price Gamep. 236
Backward Induction and the Centipede Gamep. 242
Equilibriump. 243
Referencesp. 245
Indexp. 247
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