| 1 (2008) | |||||||||||||
Abstract | |||||||||||||
| 1 Introduction Consider an airplane flight where passengers have individual movie screens and can choose to view one out of a dozen movies that are broadcast simultaneously. The flight is only long enough for one movie to be seen. The airline wants to price movies to maximize its revenue. Currently, airlines charge a flat fee for movies. Even if the fee is based on a careful marketing study, passenger demographics may vary from one flight to another, and individual utilities can vary with flight route, time of the year, etc. Therefore a non-adaptive pricing is unlikely to be optimal for the seller. We investigate adaptive pricing via auctions. We consider the problem of selling several items, with each item available in unlimited supply. By unlimited supply we mean that either the seller has at least as many items as there are consumers, or that the seller can reproduce items on demand at negligible marginal cost. Of particular interest are digital and broadcast items. With unlimited supply, consumer utilities, the maximum price a consumer is willing to pay for an item, are the sole factor determining sale prices and number of items sold. We assume that each consumer has potentially different utilities for different items, and needs one item only. The seller's goal is to set prices to maximize total revenue. | |||||||||||||
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