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Product Design in a Market with Satisficing Customers

  • Matulya Bansal
  • Costis Maglaras
Chapter
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 131)

Abstract

We study the product design problem of a revenue-maximizing firm that serves a market where customers are heterogeneous with respect to their valuations and desire for a quality attribute and are characterized by a perhaps novel model of customer choice behavior. Specifically, instead of optimizing the net utility that results from an appropriate combination of prices and quality levels, customers are “satisficers” in that they seek to buy the cheapest product with quality above a certain customer-specific threshold. This model dates back to Simon’s work in the 1950s and can be thought of as a model of bounded rationality for customer choice. We characterize the structural properties of the optimal product menu for this model and explore several examples where such preferences may arise.

Keywords

Nash Equilibrium Quality Attribute Revenue Management Delay Cost Customer Class 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag US 2009

Authors and Affiliations

  1. 1.Graduate School of BusinessColumbia UniversityNew YorkUSA

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