Class Pricing
Name
SSRN-id1084113.pdf
Size
218.06 KB
Format
Adobe PDF
Checksum (MD5)
cf588fa56406e309f10dc87b09b27a9f
Author(s)
Wernerfelt, Birger
Date Issued
January 15, 2008
Publisher
Cambridge, MA; Alfred P. Sloan School of Management, Massachusetts Institute of Technology
Series/Report no.
MIT Sloan School of Management Working Paper;4765-09
Abstract
A contract with K-class pricing divides a large set of goods or services into K classes and assigns a single price to any element of a class. Class pricing can be efficient when several different versions may be traded and it is costly to assign individual prices to all of them. It is more likely to be used when the number of buyers is smaller, the number of versions is larger, the variance in costs is smaller, and demand ex ante differs less between versions. Under simple conditions classes should be designed to minimize the sum of squared within-class cost deviations. In bilateral trades, the most efficient game form is that in which classes are designed by the player with less varied gains from trade, while the traded version is chosen by the other player. Decisions are thus made by the player who cares most about them, while the opponent prescribes a set of limits.
Subjects
Pricing costs
bargaining costs
incomplete contract
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