2308. Opaque Products in a Generalized Market Model
Invited abstract in session MD-29: Product, Pricing, and Channel Strategies under Market Uncertainty, stream Pricing and Revenue Management Innovations.
Monday, 14:30-16:00Room: Maurice Keyworth 1.04
Authors (first author is the speaker)
| 1. | Michelle Mitter
|
| Service Operations, University of Duisburg-Essen | |
| 2. | Jochen Gönsch
|
| Mercator School of Management, University of Duisburg-Essen |
Abstract
Opaque products, such as the blind booking services offered by Lufthansa, Wizz Air, and Hotwire, are increasingly common in practice and appear in other industries, such as retail mystery boxes. Within Strategic Operations Management (SOM), analyses of opaque products are often based on Hotelling-type models, where consumer preferences for component products are not independent but inherently linked. This assumption implies that if a consumer values both components equally, she will always face an adjustment cost of 0.5 for each component. However, the model cannot represent consumers who strongly prefer both components and thus experience lower adjustment costs – or those who dislike both, leading to high adjustment costs. We extend this framework to a more general market model where component preferences are independent and uniformly distributed. Using an analytical optimization approach based on Karush-Kuhn-Tucker (KKT) conditions, we show that the choice of market model critically affects both the profitability of opaque products and optimal pricing strategies. In contrast to previous findings, segmentation benefits from opaque selling are less frequent and strongly depend on market characteristics, particularly the degree of horizontal differentiation.
Keywords
- Revenue Management and Pricing
- Behavioural OR
- Strategic Planning and Management
Status: accepted
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