Research on Price Dynamics and Mechanism
Perishable Goods Markets
Supported by NSF Grant SES
This area of research examines the behavior and design
of markets for 'perishable goods', defined as goods that lose their
some fixed point in the future (examples include event or airline
tickets and seasonal products). It
also uses the setting of perishable goods, which provide intertemporal
variation in buyers' and sellers' incentives, to understand phenomena
that exist across many other types of markets.
The research covers three distinct projects:
(1) understanding price dynamics: this
project uses new data from secondary markets for event tickets to
explain price dynamics in perishable goods markets, in particular
sellers' pricing behavior is consistent with theoretical models of
management (Talluri and van Ryzin, 2004).
Revenue management models have been widely used to guide the
capacity decisions of companies in many industries. For example,
Crandall, the former head of American Airlines, regarded revenue
management as “single
most important technical development in transportation management since
entered the era of airline deregulation in 1979”, but there has been
almost no research
in economics aimed at understanding the empiricial relevance of revenue
management models (McAfee and te
Velde, 2006). The paper also considers
the extent of strategic consumer behavior in these markets. A paper (which is under revision for the Journal of Political Economy) is
in Perishable Goods Markets: The Case of Secondary
Markets for Major League Baseball Tickets".
optimal pricing behavior and competition: most of
the revenue management literature assumes that there is a single
seller. This is rarely true in practice,
as different sellers compete to offer similar products.
With competition, sellers are likely incentivized to price in
ways that may impact their competitors' future prices.
This project uses new
data from secondary markets for event tickets to estimate an innovative
continuous time model of demand and seller interaction, which allows us
understand how competitive interactions affect a seller's optimal
use data on event tickets partly because data is available but also
because dynamic pricing between large competing sellers is now an
important phenomena in these markets as event promoters and their
ticketing partners begin to use dynamic pricing to compete with
secondary market brokers. For example, LiveNation
has described introducing dynamic pricing as a key element in its
The modeling framework developed by this
project is also being used in work understanding how competitive
dynamic pricing affects pricing outcomes for non-perishable products.
market design (auctions vs. fixed prices): very
simple economic models suggest that sellers should typically prefer to
auctions rather than fixed prices.
However, fixed prices are widely used throughout the economy,
are even becoming the most common form of pricing on eBay where it is
straightforward for sellers to use auctions.
It is important for market designers to understand what makes
prices so popular. This project seeks to
understand sellers' choices of sales mechanism in the secondary market
perishable event tickets. While
perishable goods markets are important in their own right, they also
ideal environment for studying sellers’ incentives about which
mechanism to use
as we can observe individual sellers switching between using fixed
auctions depending on the remaining life of the product.