Do Consumers Benefit from Dynamic Pricing?

      Department of Systems Engineering and Engineering Management
                             The Chinese University of Hong Kong
Time: Feb 18th (Thursday) , 4:30-5:30pm in ERB 513
Talk Title: Do Consumers Benefit from Dynamic Pricing?
Speaker: Guillermo Gallego (Department of Industrial Engineering and Logistic Management, Hong Kong University of Science and Technology)
Co-author: Ningyuan Chen (Yale University)
Abstract: We have asked this question to seasoned practitioners and leading academics and the answer is often "I don't know, but my intuition is that if the seller is benefiting from dynamic pricing then it may be because more surplus is being extracted from consumers." This zero-sum game perception may even prevent the use of dynamic pricing if companies feel that it may hurt their image in the eyes of consumers. It was the expression of this sentiment by an industry executive that leads us to this investigation. We asked ourselves: Do consumers prefer random prices? In other words, is the consumer surplus a decreasing convex function of price? Is the price an increasing concave function of cost? Is the composite function a decreasing convex function of cost? And if this is true, is dynamic pricing (which responds to random changes in marginal cost of capacity), better than fixed pricing for consumers? We show that the answers are mostly yes, so dynamic pricing is win-win most of the time, but there are some exceptions as we will describe in our talk.
Short bio:
Professor Guillermo Gallego is currently Crown Worldwide Professor of Engineering and Head of Industrial Engineering and Logistic Management, Hong Kong University of Science and Technology.
He started his academic career with Columbia University's Industrial Engineering and Operations Research Department in 1988 where he has been conducting research in the areas of inventory theory, supply chain management, revenue management, and dynamic pricing. He was named an Informs Fellow in 2012 and has been the recipient of many awards including the Informs Revenue Management Section Prize (2005), the Revenue Management Historical Prize (2011) and the Revenue Management Practice Prize (2012). Professor Gallego has published influential papers in the leading journals of his field where he has also occupied a variety of editorial positions. His work has been supported by numerous industrial and government grants.
Professor Gallego has consulted for Hewlett Packard, IBM, Lucent, Nomis Solutions, and Sabre Airline Solutions. He has also worked with government agencies such as the National Research Council, the National Science Foundation and the Ireland Development Agency. His graduate students are associated with prestigious universities. He spent his 1996-97 sabbatical at Stanford University and was a visiting scientist at the IBM Watson Research Center from 1999 to 2003. He was the chairman of the IEOR Department from July 2002 to June 2008.
Thursday, February 18, 2016 - 08:30 to 09:30