An Adjustment Scheme for Nonlinear Pricing Problem

1
An Adjustment Scheme for Nonlinear Pricing
Problem

• Kimmo Berg
• kimmo.berg_at_tkk.fi
• supervisor Prof. Harri Ehtamo

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Nonlinear Pricing is an example of Mechanism
Design

• Monopoly designs bundles for buyers without
  knowing their preferences
• How can the firm learn the solution when the
  product is sold for multiple rounds and the firm
  observes the sales data?
• The firm designs tariffs that produce information
  and adjusts towards better profit

3
Ehtamo et al. 2007

• computational method for two-buyer case
• seller increases the amount so that both the
  seller and the buyers gain
• local profit maximization under constraints is a
  gradient method for the problem

4
Berg, Ehtamo 2007

• more than two buyers
• adds more complexity buyers may be bunched,
  i.e., they get the same bundle
• method must find the optimal bunches
• the firm can evaluate optimality conditions by
  offering linear tariffs

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References
http//www.sal.hut.fi/Publications/m-index.html

• Ehtamo, Berg, Kitti. An Adjustment Scheme for
  Nonlinear Pricing Problem with Two buyers.
  Manuscript 2007
• Berg, Ehtamo. Solving optimal screening problem
  with unknown utility functions. Manuscript 2007