Risk classification and cream skimming on the deregulated German insurance market

In a two-stage model insurance companies first decide upon risk classification and then compete in prices. I show that the observed heterogeneous behavior of similar firms is compatible with rational behavior. On the deregulated German insurance market individual application of classification schemes induces welfare losses due to cream skimming. Classification costs and pricing above marginal cost can be prevented by common industry-wide loss statistics which already exist to a rudimentary extent. They allow competition to approach Bertrand type. The computation of a mixed-strategy equilibrium for Bertrand competition allows to explain the decrease of industry profit after deregulation. --Insurance Regulation,Cream Skimming,Bertrand Competition

A Theory of Capital Structure with Strategic Defaults and Priority Violations

We reformulate the classic CSV model of financial contracting from Townsend (1979) and Gale & Hellwig (1985) to tackle criticisms raised against it voiced by Hart (1995), such as lack of optimal behavior at the repayment stage and an inability to allow for outside equity. As a result, we obtain a theory of capital structure that accommodates empirical regularities such as bankruptcies, strategic defaults of debt obligations, and violations of absolute priority rules as parts of the equilibrium description.Cash Diversion, Costly State Verification, Outside Equity, Financial Contracts.

Optimal pricing using online auction experiments: A P\'olya tree approach

We show how a retailer can estimate the optimal price of a new product using observed transaction prices from online second-price auction experiments. For this purpose we propose a Bayesian P\'olya tree approach which, given the limited nature of the data, requires a specially tailored implementation. Avoiding the need for a priori parametric assumptions, the P\'olya tree approach allows for flexible inference of the valuation distribution, leading to more robust estimation of optimal price than competing parametric approaches. In collaboration with an online jewelry retailer, we illustrate how our methodology can be combined with managerial prior knowledge to estimate the profit maximizing price of a new jewelry product.Comment: Published in at http://dx.doi.org/10.1214/11-AOAS503 the Annals of Applied Statistics (http://www.imstat.org/aoas/) by the Institute of Mathematical Statistics (http://www.imstat.org

Product introduction by SMEs

In recent years a great deal of research has been carried out on the subject of product introductions. However, there has been little research on product introductions by small and medium sized enterprises (SMEs). Current theory on product introductions might thus not be fully applicable to SMEs. This report therefore aims to answer the question: 'Does the way product introductions are handled by SMEs differ from the way product introductions are described in literature?' �We find that there are indeed differences, though these are mainly differences in level of detail and focus.

On Policies for Single-leg Revenue Management with Limited Demand Information

In this paper we study the single-item revenue management problem, with no information given about the demand trajectory over time. When the item is sold through accepting/rejecting different fare classes, Ball and Queyranne (2009) have established the tight competitive ratio for this problem using booking limit policies, which raise the acceptance threshold as the remaining inventory dwindles. However, when the item is sold through dynamic pricing instead, there is the additional challenge that offering a low price may entice high-paying customers to substitute down. We show that despite this challenge, the same competitive ratio can still be achieved using a randomized dynamic pricing policy. Our policy incorporates the price-skimming technique from Eren and Maglaras (2010), but importantly we show how the randomized price distribution should be stochastically-increased as the remaining inventory dwindles. A key technical ingredient in our policy is a new "valuation tracking" subroutine, which tracks the possible values for the optimum, and follows the most "inventory-conservative" control which maintains the desired competitive ratio. Finally, we demonstrate the empirical effectiveness of our policy in simulations, where its average-case performance surpasses all naive modifications of the existing policies

Introduction of Software Products and Services Through Public 'Beta' Launches

Public 'Beta' launches have become a preferred route of entry into the markets for new software products and web site based services. While beta testing of novel products is nothing new, typically such tests were done by experts within firm boundaries. What makes public beta testing so attractive to firms? By introducing semi-completed products in the market, the firm can target the early adopter population, who can then build the potential market through the word of mouth effect by the time the actual version of the product is launched. In addition, the information gathered through the usage of the public beta gives significant insights into customer preferences and consequently helps in building a better product. We build these marketing and product development implications in an analytical model to compare the different product introduction strategies like 'skimming' or 'penetration pricing' with beta launches. This analysis is done for products of branded and unbranded Web 2.0 companies like Google and Flickr etc. We also examine the impact of different monetization models like direct pricing and advertising on the beta launch strategy

Investigating The Relationship Between Pricing Strategies And International Customer Acquisition In The Early Stage Of SaaS: The Role Of Hybrid Pricing

Modern cloud infrastructures make it possible for SaaS businesses to provide their services to clients all over the world. As a result, it is easy for a SaaS company to operate on a worldwide scale in an early stage. Innovative SaaS services are more difficult to price than regular products. Poor pricing may lead to a misleading impression of the product, while a well-thought-out price plan can assist a business in achieving its immediate and long-term revenue objectives while also satisfying its customers. The goal of this study is to investigate which pricing strategy helps SaaS organizations attract more customers. Correlation, Random Forest Regression, and Pairwise Multiple Linear regression were applied. The correlation heatmap shows that the sales volume is highly and positively associated with hybrid pricing. This indicates that the implementation of the hybrid pricing technique is associated with more sales volume.  The majority of SaaS companies in the study sample used freemium, high-low, and hybrid. The skimming and the penetration pricing techniques were the least employed pricing tactics in SaaS.  The regression model with hybrid pricing has also shown a high explanatory performance. With an overall score of 91.89 percent, the findings of this empirical study showed a sufficient degree of accuracy. According to the random forest results, among other techniques, hybrid pricing is the most significant pricing technique in increasing sales volume in SaaS.  This study recommends that the SaaS business should employ a hybrid pricing approach in order to attract more consumers, enhance the entire experience they deliver, and therefore increase SaaS sales revenues