2015 Informs Annual Meeting

SB43

INFORMS Philadelphia – 2015

SB43 43-Room 103A, CC New Directions in Revenue Management Sponsor: Revenue Management and Pricing Sponsored Session Chair: Dan Iancu, Assistant Professor, Stanford University, 655 Knight Way, Stanford, CA, 94305, United States of America, daniancu@stanford.edu Co-Chair: Omar Besbes, Professor, Columbia University, Graduate School of Business, New York, NY, 10027, United States of America, ob2105@columbia.edu Ying Liu, Stern School of Business, New York University, 44 West 4th Street, KMC 8-154, New York, NY, 10012, United States of America, yliu2@stern.nyu.edu, Rene Caldentey, Guillermo Gallego Motivated by Revenue Management applications, we consider a firm selling a finite inventory of a perishable product to a population of price sensitive customers. We consider the case in which consumers’ valuation for the product is not static but rather changes stochastically over time after they purchase the item. The firm can take advantage of this feature to buy back some units and resell them to new arrivals. We investigate the structure of an optimal buy/sell dynamic pricing strategy. 2 - Financing Capacity Investment under Demand Uncertainty Francis De Vericourt, Professor, ESMT, Schlossplatz 1, Berlin, 101178, Germany, devericourt@esmt.org, Denis Gromb We consider the capacity choice problem of a firm whose access to external capital markets is hampered by moral hazard. The firm must therefore not only calibrate its capacity investment, but also optimize its sourcing of funds. We find that when higher demand realizations are more indicative of high effort, debt financing is optimal. In this case, the optimal capacity is never below the efficient capacity level but sometimes strictly above that level. 3 - Points for Peanuts or Peanuts for Points: Dynamic Management of Loyalty Programs So Yeon Chun, McDonough School of Business, Georgetown University, 3700 O St. NW, Washington, DC, United States of America, sc1286@georgetown.edu, Nikolaos Trichakis, Dan Iancu We study the problem of dynamically managing a loyalty program. While originally viewed as marketing efforts, in the last two decades loyalty programs have grown substantially in size and scope, to the extent that they now often significantly interact with other firm functions, including operations, accounting and finance. We develop a dynamic programming model to study the problem of optimally setting prices and point requirements. 4 - Dynamic Pricing under Convex Incentives Dan Iancu, Assistant Professor, Stanford University, 655 Knight Co-Chair: Nikolaos Trichakis, HBS, ntrichakis@hbs.edu 1 - Dynamic Pricing in the Presence of Consumers with Stochastically Changing Valuations

Firms employ mass customization to closely match customers’ taste with the delivered product. We additionally consider the brand-level issue of mismatch between customers’ tastes and the firm’s full range of products. We show that such a brand-level mismatch limits the usage of mass customization, even when costless to the firm, and makes the firm employ differential pricing. 2 - Cannibalization in Secondary Markets Wedad Elmaghraby, Associate Professor, University of Maryland, University of Maryland, 4311 Van Munching Hall, College Park, MD, 20742, United States of America, welmaghr@rhsmith.umd.edu We present results from a field experiment conducted on the platform of a leading business-to-business wholesale liquidators. By manipulating starting prices for auctions of iPads, we explore the presence of cannibalization and reference price effects in these online markets. 3 - Advance Selling with Reservations: Optimal Pricing and Overbooking Strategies Jaelynn Oh, jaelynn.oh@business.utah.edu, Xuanming Su Customers who make reservations in advance are guaranteed service when they show up. We study whether and how firms should charge for reservations and relate our results to advance selling strategies. 4 - Trade-in Remanufacturing, Strategic Customer Behavior, and Government Subsidies Renyu Zhang, Doctoral Student, Olin Business School, Washington University in St. Louis, Campus Box 1133,, 1 Brookings Drive, St. Louis, MO, 63130, United States of America, renyu.zhang@wustl.edu, Fuqiang Zhang We study the impact of remanufacturing under strategic customer behavior and government subsidies. We find that trade-in remanufacturing can serve as an effective mechanism to mitigate strategic customer behavior, and that the adoption of remanufacturing and the government subsidies for remanufactured products may not lead to an environmentally better outcome. We also characterize the government subsidy/tax scheme that can induce the socially optimal outcome. SB45 45-Room 103C, CC Retail Pricing Sponsor: Revenue Management and Pricing Sponsored Session Chair: Goker Aydin, Indiana University, 1309 East Tenth Street, Bloomington, IN, 47405, United States of America, ayding@indiana.edu 1 - Group Buying under Consumer’s Uncertainty Victor Araman, American University of Beirut, Beirut, Lebanon, va03@aub.edu.lb, Skander Esseghaier We develop a model of group buying under consumer uncertainty where a consumers’ decision to acquire information and decision to share the acquired information is endogenously determined as a result of a game between these consumers. We determine the optimal group buying strategies and show that when there is sufficient heterogeneity across consumers with respect to their cost of information search and acquisition, group buying dominates the more traditional individual selling strategy. 2 - Online Inventory Disclosure: Consumer Uncertainty and Experience Tolga Aydinliyim, Baruch College, One Bernard Baruch Way, Dept of Management Box B9-240, New York, United States of America, Tolga.Aydinliyim@baruch.cuny.edu, Michael Pangburn, Elliot Rabinovich Given varied consumer perceptions of inventory information, online retailers’ presentation of such information influences purchase behavior. We investigate optimal inventory disclosure policies assuming two distinct consumer segments: savvy consumers who can predict a retailer’s stock levels (even when masked) and naïve consumers who rely on priori (stochastic) beliefs regarding inventory. 3 - Better Late than Now: Delayed vs. Instantaneous Retail Price Discounts Monire Jalili, University of Oregon, 1208 University of Oregon, Eugene, United States of America, mjalili@uoregon.edu, Michael Pangburn Retailers commonly offer a percent off a purchase and apply it either immediately or toward a future purchase. Permitting rational, forward-looking consumers, we prove that delayed discounting can improve profitability if the market is heterogeneous.

Way, Stanford, CA, 94305, United States of America, daniancu@stanford.edu, Omar Besbes, Nikolaos Trichakis

We discuss optimal dynamic pricing policies when certain convex incentives govern the terminal payoffs. These could arise in a multitude of settings, including debt financing or sales incentives.

SB44 44-Room 103B, CC Models of Customer Behavior Sponsor: Revenue Management and Pricing Sponsored Session

Chair: Xuanming Su, The Wharton School, University of Pennsylvania, Philadelphia, United States of America, xuanming@wharton.upenn.edu Co-Chair: Jaelynn Oh, The University of Utah , 1655 East Campus Center Drive , Spencer Fox Eccles Business Building, Salt Lake City UT, jaelynn.oh@business.utah.edu 1 - Mass Customization, Externalities, and Guardrail Products: ìYou Can’t be all Things to all Peopleî Eren Cil, University of Oregon, 1585 East 13th Avenue, Eugene, OR, United States of America, erencil@uoregon.edu, Michael Pangburn

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