Package Sizes, Tariffs, Quantity Discount and Premium

Nahata, Babu; Kokovin, Sergey; Zhelobodko, Evegeny

doi:10.2139/ssrn.909295

Cited by 8 publications

(3 citation statements)

References 4 publications

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“…Classic examples include identifying the right package size (larger sizes are not always optimal) of travelers' toiletries (Nahata et al 2006), ideal level of sweetness of a drink (over sweetness may not be preferred), and the optimal units of power production (production creates pollution) for a township (Rothwell and Rust 1997). Free disposal is often a central assumption in many economic models because it is technically convenient (Repullo 1987), but more recently computational approaches in auctions research have examined the impact of selling NFD goods wherein an auctioneer incurs some cost to keep unsold goods (Sandholm and Suri 2003).…”

Section: Delivery Of Online Personalization Servicesmentioning

confidence: 99%

Mechanism Design for 'Free' But 'No Free Disposal' Services: The Economics of Personalization under Privacy Concerns

Chellappa

Shivendu

2009

SSRN Journal

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Section: Delivery Of Online Personalization Servicesmentioning

confidence: 99%

Mechanism Design for 'Free' But 'No Free Disposal' Services: The Economics of Personalization under Privacy Concerns

Chellappa

Shivendu

2009

SSRN Journal

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“…This ideal point is a result of internalizing the tradeoff between gain from personalization and loss from privacy, which leads to a non-monotonic utility function that first increases then falls in services consumed (purely quality models with monotonic utilities are sometimes called "infinite ideal-point" -consumers homogeneously prefer an infinite amount of the good -models (Moorthy 1985)). While somewhat less studied than their "free disposal" counterpart, we commonly come across NFD goods when users have an intrinsic disutility from consuming beyond their satiation level (Nahata et al 2003). Classic examples include identifying the right package size of travelers' toiletries (larger sizes are not always optimal), ideal level of sweetness of a drink (over-sweetness may not be preferred) and the optimal units of power production for a township (production creates pollution) (Rothwell and Rust 1997).…”

Section: Review Of Relevant Literaturementioning

confidence: 99%

Competing in the Presence of Privacy Concerns: A Model of the Market for Customer Information

Chellappa

Sin

2008

SSRN Journal

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There is "no free disposal" (NFD) in the consumption of online personalization services, as this activity inherently involves sharing of personal and preference information that creates disutilities to the consumer. Not only are more services not necessarily better for the consumer, but these services are also provided for free as firms extract value from the usage of consumer information rather than from directly pricing the services. Further, the services themselves may be provided to a consumer as a fixed-length toolbar/deskbar (fixed-services strategy) or with the option of choosing a subset of the portfolio of services offered (variable-services strategy). This paper models a duopoly of firms that are heterogeneous in their marginal value for consumer information (MVI) and interact through a two-stage dynamic game, where the firms choose a fixed-or variable-services strategy in the first stage and their level of services offering in the second. After examining a series of subgame equilibria, we arrive at distinct subgame-perfect Nash equilibriua (SPNEs) that allows us to characterize competition between firms of different MVI endowments. Our findings suggest that while there is no SPNE in a duopoly of two small firms, when one firm is small and the large, there is a unique SPNE in pure strategies where both firms offer fixed-services such that they segment the market. As the differences in their valuations increase, the larger firm continues to offer fixed-services while smaller firm enjoys the option of offering variable services. A duopoly of large firms results always results in symmetric SPNE; both firms offer variable services as long as one firm has very large MVI and both offer fixed-services otherwise. Interestingly while the former is consumer welfare maximizing, the latter results in a third of the market (consisting of privacy seekers) not being served. Our results lead to important managerial and policy implications, as well as interesting extensions to the existing location models.

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“…Each consumer has an optimal service level ( ) * c s that she prefers over all other service levels. The latter (and its quadratic form) is a characteristic of a class of economic goods with the "no free disposal" property which implies that individuals derive disutility from consuming additional quantities beyond their satiation level, e.g., hikers prefer to carry an optimal sized water container rather than very small or large bottles (Nahata et al 2003).…”

Section: Modelmentioning

confidence: 99%

An economic model of portal competition under privacy concerns

Chellappa

Sin

2007

Proceedings of the Ninth International Conference on Electronic Commerce

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Due to inherent privacy concerns, online personalization services such as those offered through toolbars and desktop widgets are characterized by "no-free-disposal" (NFD) property, in that more services are not necessarily better for the consumer. There are two defining characteristics of this market: First, these services are "free" as firms value consumers' preference information shared for personalization; second, while some firms provide toolbars of a fixed-length as a take-it or leave-it offer, many others offer consumers the option of choosing a subset of the services offered. Our findings suggest that in a fixed-services duopoly where firms are endowed with sufficiently different marginal values for information (MVIs), the high MVI firm caters to convenience seekers in the market while the low MVI firm serves a portion of largely privacy seeking consumers in equilibrium; if the duopoly were characterized by sufficiently high MVIs, firms would minimize differentiation and offer the same number of services. However, when two high-MVI firms pursue variable-services strategy, there is a unique symmetric equilibrium that maximizes consumer surplus. Counter to intuition, some very high-MVI firms may prefer the consumer-surplus maximizing strategy of offering the full set of variable services over the fixed-services strategy, thus maximizing both consumer and social welfares. Our results lead to important managerial and policy implications and interesting extensions to the existing location models.

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Package Sizes, Tariffs, Quantity Discount and Premium

Cited by 8 publications

References 4 publications

Mechanism Design for 'Free' But 'No Free Disposal' Services: The Economics of Personalization under Privacy Concerns

Mechanism Design for 'Free' But 'No Free Disposal' Services: The Economics of Personalization under Privacy Concerns

Competing in the Presence of Privacy Concerns: A Model of the Market for Customer Information

An economic model of portal competition under privacy concerns

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