Speaker

Prof. Zizhuo Wang,明尼苏达大学工业与系统工程系

　　Title

Multinomial Logit Pricing Problems under Network Effects 

　　Time

　　Venue

N210

　　Abstract

We consider a seller's problem of determining revenue-maximizing prices for an assortmentof products that exhibit network effects. Customers make purchase decisions according to amultinomial logit (MNL) customer choice model, modified - to incorporate network effects- so that the utility each individual customer gains from purchasing a particular productdepends on the market's total consumption of that product. In the setting of homogeneousproducts, we show that if the network effect is comparatively weak, then the optimal pricingdecision of the seller is to set identical prices for all products. However, if the network effect isstrong, then the optimal pricing decision is to set the price of one product low, and to set theprices of all other products to a single high value. This boosts the sales of the single low-priceproduct in comparison to the sales of all other products. These results can be compared tothe optimal pricing policy for the classical MNL model (without network effects) in which it isoptimal to set identical prices and obtain identical sales quantities for homogeneous products.We obtain comparative statics results that describe how optimal prices and sales levels varywith a parameter that determines the strength of the network effects. We extend our analysis tosettings with heterogeneous products as well as to settings with inter-product network effects,and we describe efficient computational methods.   

　　Affiliation

Dr. Zizhuo Wang is an assistant professor from the Department of Industrial and Systems Engineering (ISyE) at University of Minnesota. He received his PhD in Operations Research from Stanford University in 2012. Prior to that, he graduated from Department of Mathematical Sciences in Tsinghua University at 2007 and obtained his M.S. in Mathematical Finances in 2011 from Stanford University. His research interests mainly focus on optimization and stochastic modeling, especially with applications to pricing and revenue management. He has published several papers in top journal in the field of operations research, including Operations Research, Mathematics of Operations Research, Mathematical Programming, SIAM Journal on Optimization etc.