Bid-Response Models for Customized Pricing (Ed. 2)
Ferguson, Mark E.
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In this paper, we study pricing situations where a firm provides a price quote in the presence of uncertainty in the preferences of the buyer and the competitive landscape. We introduce two customized-pricing bid-response models used in practice, which can be developed from the historical information available to the firm based on previous bidding opportunities. We show how these models may be used to exploit the differences in the market segments to generate optimal price quotes given the characteristics of the current bid opportunity. We also describe the process of evaluating competing models using an industry dataset as a test bed to measure the model fit. Finally, we test the models on the industry dataset to compare their performance and estimate the percent improvement in expected profits that may be possible from their use.