【Title】Revenue Management with Bargaining

【Speaker】Professor George Shanthikumar, Krannert School of Management, Purdue University

【Host】Dr. Max Shen

【Time】June 4, 2013 (Tuesday), 2:00-3:00pm

【Location】Room 412, Shun-de Building

【Abstract】We study the role of bargaining in a firm's revenue management. The seller firm under consideration sells a fixed amount of stock to a random arrival stream of potential buyers over a finite selling season. The buyers are heterogeneous in their valuation of the product. Based on the stock level and the time to the end of the selling season, the seller may dynamically choose either to post a take-it-or-leave-it product price or to engage in bargaining with an arriving buyer to determine the selling price. A distinct feature of our model is to identify the natural linkage between the seller's disagreement point from a trade and her future value of the product, which introduces challenges in analysis as well as leading to very different conclusions from previous studies on revenue management with bargaining. To facilitate the analysis, we introduce a stochastic order, called scaled pricing order, for the buyer's valuation distribution. The scaled pricing order measures the average portion of trade surplus that the seller can obtain by posting a price. We characterize the family of distributions that are invariant in scaled pricing order, which includes uniform and exponential distributions. When the buyer's valuation falls in the invariant family, the seller should stick to either pricing or bargaining throughout the selling season, depending on her bargaining power vis-a-vis the buyer. When the buyer's valuation is increasing (decreasing) in the scaled pricing order, the seller should choose pricing (bargaining) at the beginning of the selling season and switch to bargaining (pricing) toward the end. We also discuss several variations of our model by including transaction-based bargaining cost, commission-based bargaining cost and a mixed buyer population with bargainer and non-bargainers.

【Bio】Professor Shanthikumar joined the Krannert faculty in 2009. Prior to coming to Purdue, he was a Chancellor's Professor of Industrial Engineering and Operations Research at the University of California, Berkeley. His research interests are in integrated interdisciplinary decision making, model uncertainty and learning, production systems modeling and analysis, queueing theory, reliability, scheduling, semiconductor yield management, simulation stochastic processes, and sustainable supply chain management. He has written or co-written more than 250 papers on these topics. He is a co-author (with John A. Buzacott) of the book Stochastic Models of Manufacturing Systems and a co-author (with Moshe Shaked) of the books Stochastic Orders and Their Applications and Stochastic Orders.

He was a co-editor of Flexible Services & Manufacturing Journal and is (or was) a member of the editorial boards of the Asia-Pacific Journal of Operations Research, IEEE Transactions on Automation Sciences and Engineering, IIE Transactions, International Journal of Flexible Management Systems, Journal of Discrete Event Dynamic Systems, Journal of the Production and Operations Management Society, Operations Research, Operations Research Letters, OPSEARCH, Probability in the Engineering and Information Sciences, and Queueing Systems: Theory and Applications.

Professor Shanthikumar has extensively consulted for various companies, including Applied Materials (AMAT), Bellcore, IBM, KLA-Tencor, NTT (Japan), Intel, Intermolecular, ReelSolar, Safeway, and Southern Pacific. Through KLA-Tencor, he has worked on joint development projects for Advanced Micro Devices, IBM, Intel, LSI, Motorola, Texas Instruments, Toshiba, Fujitsu, Taiwan Semiconductor Manufacturing Company, and UMC.

Looking forward to your attendance.