1 research outputs found
Monopoly pricing with buyer search
In many shopping scenarios, e.g., in online shopping, customers have a large
menu of options to choose from. However, most of the buyers do not browse all
the options and make decision after considering only a small part of the menu.
To study such buyer's behavior we consider the standard Bayesian monopoly
problem for a unit-demand buyer, where the monopolist displays the menu
dynamically page after a page to the buyer. The seller aims to maximize the
expected revenue over the distribution of buyer's values which we assume are
i.i.d. The buyer incurs a fixed cost for browsing through one menu page and
would stop if that cost exceeds the increase in her utility. We observe that
the optimal posted price mechanism in our dynamic setting may have quite
different structure than in the classic static scenario. We find a (relatively)
simple and approximately optimal mechanism, that uses part of the items as a
"bait" to keep the buyer interested for multiple rounds with low prices, while
at the same time showing many other expensive items