We consider the problem of assigning prices to goods of fixed
marginal cost in such a way as to maximize revenue in the presence
of single-minded customers. We focus in particular on the question
of how pricing certain items below their marginal costs can lead to
an improvement in overall profit, even when customers behave in a
fully rational manner. We develop two frameworks for analyzing this
issue that we call the
rebate and
coupon models, and
examine both fundamental profitability gaps (to what extent can
pricing below cost help to improve profit) as well as algorithms for
pricing in these models in a number of settings.
-
Random Sampling Auctions for Limited Supply.
With Nikhil Devanur, Jason D. Hartline, and Kunal Talwar. Technical Report, CMU-CS-07-154.