TECHNICAL NOTE---Revenue Management with Bargaining

Authors:
Atul Bhandari;Nicola Secomandi
Affiliations:
SmartOps, Pittsburgh, Pennsylvania 15212;Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213
Venue:
Operations Research
Year:
2011

Citing 6
Cited 0

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Abstract

Static game-theoretic models of bilateral bargaining assume that the seller knows his valuation for the item that is up for sale; that is, how the seller may determine this quantity is exogenous to these models. In this paper, we develop and analyze a stylized Markov decision process that endogenizes the seller's computation of his marginal inventory valuation in an infinite-horizon revenue management setting when each sale occurs according to a given bilateral bargaining mechanism. We use this model to compare, both analytically and numerically, the seller's performance under four basic bilateral bargaining mechanisms with a tractable information structure. These comparisons provide insights into the seller's performance under the following trading arrangements: buyer and seller posted pricing, negotiated pricing, and rule-based pricing.