Browsing by Author "Virtanen, Ville Valtteri"

Auctions are in the core on the field of dynamic pricing. Prices alter as a function of time, by either ascending or descending, and the objective of this kind of pricing mechanism is to allocate the good for the one who is willing to pay the winning price. Northwestern University has used a pricing mechanism (Purple Pricing) combining characteristics of descending auction and dynamic pricing for several years in order to sell tickets to the university’s basketball teams’ home matches. The aim of this thesis is to examine and evaluate the functioning of this kind of mechanism. The main sources for the material and content for this literary survey can be categorized to three branches. Models and main theoretic results were provided by using related economic literature, practical model of Purple Pricing was taken as a research topic separately, and some of key facts regarding functioning of the pricing mechanism were gathered through enquiry. Main results were that Purple Pricing can be modelled by using Bellman equation and characterised as a descending auction where agents (the university and the spectators) interact with both sides having own separate maximization problems. The agents can be distinguished into seller and bidders. With certain assumptions regarding the agents, model can be solved. The solution in itself provides optimality conditions which maximize the allocation (and revenue maximization) problem of the organizer (the university). The functioning of the model has caused result concerning both ticket allocation, but also real life side effects. Besides being socially efficient in allocating the tickets, its merits have been likes of the disclosure of demand curve and abolishment of black market. Although due to its special pricing policy it was not able to reach optimum (maximum) revenue, increase in revenue did occur. Similar pricing mechanisms with context-related adjustments have potential to be used in Finnish football.