Auctions as a Pricing Mechanism

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Del curso dictado por University of Virginia

Cost and Economics in Pricing Strategy

251 calificaciones

University of Virginia

Cost and Economics in Pricing Strategy

251 calificaciones

Curso 1 de 4 en SpecializationPricing Strategy Optimization

How much should you charge for your products and services? Traditionally, businesses have answered this question based on the cost to produce or provide their goods and services. This course shows you the economic factors behind pricing based on cost and the pros and cons of a cost-based pricing approach. Led by Darden faculty and Boston Consulting Group global pricing experts, the course provides the practical and research-based models and methods you need to set prices that maximize your profits. By the end of this course, you’ll be able to: --Apply knowledge of basic economics to make better pricing decisions --Recognize opportunities for price discrimination—selling the same product at different prices to different buyers—and recommend strategies to maximize sales and profits --Calculate three types of price elasticities to determine the impact of price on demand --Analyze and apply different pricing models -Cost-plus pricing -Marginal cost-plus pricing -Peak-load pricing -Index-based pricing --Evaluate the impact of channel intermediaries and customer lifetime value on pricing

De la lección

Pricing Fundamentals

Welcome to the first week of Cost and Economics in Pricing Strategy course! We'll begin our study of pricing by looking at some basic economic principles relevant to pricing, such as cost and cost variations and what that implies about the supply curve. Then we'll take a closer look at one pricing mechanism: auctions. You will never look at eBay the same!

Auctions as a Pricing Mechanism3:24

English Auctions3:21

Dutch Auctions3:21

Sealed Bid Auctions6:09

B2B Auctions7:36

Conoce a los instructores

Jean Manuel Izaret
Senior Partner and Managing Director, Leader of BCG’s Global Pricing Practice
Thomas Kohler
Associate Director, Pricing
Marketing, Sales & Pricing Practice
Ronald T. Wilcox
NewMarket Corporation Professor of Business Administration & Senior Associate Dean for Degree Programs
Marketing

I want to talk to you now about auctions.

And when you think of auctions, you may be picturing in your head, somebody with

a big wooden gavel, maybe auctioning off some art or a fancy sports car.

And those things absolutely happen, but

auctions are much more ubiquitous than you might think that they

are especially in e-commerce, auctions are really everywhere.

If you think about companies like eBay, that's all done via auction,

or almost all of it is done via auction.

Google, they sell advertising.

That's also done via an auction mechanism.

So both in e-commerce and also in some brick and mortar stores,

you have prices that are really, look more like auction prices,

than that single optimal price, that I was writing on the demand function before.

So they really are important, and it's important that we understand

the different types of auctions, because there really are several different types.

So we're going to do a series of videos now, and

the goal of these is to kind of uncover the origins and

the characteristics of some very key auction types.

And when I say key, I mean they're popular.

They show up in a lot of different places in a lot of different business situations.

And then, I'm going to talk to you about some of the business situations

in which these auctions are used.

But where I want to start is by you thinking about a $20 bill.

Here's the question, how much would you be willing to pay me for this $20 bill?

If I took this $20 bill and

sold it to the individual who wrote down the highest price,

and sold it to them at that price what would you do right now,

if you were faced in an auction situation?

Let's think about that situation one more time.

But I'm going to change the rules of the game just a little bit.

I'm going to give you what amounts to a better deal.

Think about the $20 bill this way.

What if I asked you, how much would you be willing to pay me for that $20 bill?

But this time, I want you to write down a number.

And I'm going to sell this $20 bill to the person who writes down the biggest number.

But I'm not going to make you pay what you write down.

I'm going to make you pay the second highest bidder's bid.

So does everyone understand that?

The high bid wins but you don't pay what you write down.

You get to pay the second highest bidder's bid.

What would you do in that situation?

If you're like my students and I do this in class,

I've done it on several different occasions.

I end up making more money on that second auction type

than I do the first auction type.

Even when it looks like you've got a better deal.

You don't have to pay the number you write down.

You're going to pay the other person the number they wrote down,

which is going to be smaller.

That's a much better deal.

Wrong.

That second type of auction was called a second price-sealed bid,

and that's one of the auction types that I'm going to cover in the upcoming videos.

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