Pricing Services and Products in the Presence of Parallel Delivery Mechanisms and Strategic Consumer Behavior

Delivery mechanisms are the processes by which firms sell their products and services to customers. For example, in online marketplaces, some sellers choose to sell their products at a fixed posted price, whereas others solicit bids and sell to the highest bidder. There have been many studies comparing the benefits of different delivery mechanisms to sellers and customers under the assumption that sellers offer their products through a single delivery mechanism. However, firms increasingly offer their products and services through multiple delivery mechanisms in parallel, allowing their customers to choose among the delivery mechanisms. The goal of this project is to develop models and algorithms to help sellers choose which delivery mechanisms to operate in parallel, what prices to charge in each delivery mechanism, and how to allocate limited service capacity among the different delivery mechanisms. The models and algorithms developed within the scope of this project will enable sellers to maximize their revenue, while providing more effective service to their customers.

A key difficulty in the analysis of parallel delivery mechanisms is that the customers are strategic, and their decision to make use of a particular delivery mechanism depends on the decisions of the seller and of other customers. This dependence requires analyzing the equilibrium resulting from customers' and seller's decisions by using tools from game theory and stochastic models. Computation of equilibria is provably hard. This project will identify conditions under which equilibria exist and will characterize the structure of strategies employed by customers in equilibrium. This characterization will be used to identify the features of customers who make use of a particular delivery mechanism, make design decisions on prices and service capacities used in different delivery mechanisms, and to find the optimal amount of information sharing between the seller and the customers.