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Revenue Management with Bargaining

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journal contribution
posted on 12.04.2000 by Atul Bhandari, Nicola Secomandi
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 on the seller's performance under the following trading arrangements: buyer and seller posted pricing, negotiated pricing, and rule based pricing.

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12/04/2000

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