Opaque products: an application in the air transport industry

Short Abstract

In the case of non-storable goods and uncertain or changing demand, companies may be focused on introducing pricing practices, such as opaque products. This article provides a theoretical model in order to analyze the optimality of this new pricing practice which aims to generate additional demand. We provide an application of opaque products in the air transport industry due to the nature of the goods and the market conditions of low or uncertain demand that frequently faces and that has recently increased due to the Covid-19 pandemic. Opaque selling may help companies in dealing with excess capacity and generating extra revenues. We focus on how consumers’ risk attitude influences the optimality of opaque products. Moreover, we demonstrate that only if consumers are risk-averse, companies may apply an additional discount over the initial price of the opaque product. Otherwise, opaque selling is always optimal for dealing with excess capacity. However, we demonstrate, under different market conditions, the optimality of opaque selling with the mentioned discount.

Opaque products, uncertainty, pricing, capacity management

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Gran Canaria

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Opaque products: an application in the air transport industry

Gran Canaria

In the case of non-storable goods and uncertain or changing demand, companies may be focused on introducing pricing practices, such as opaque products. This article provides a theoretical model in order to analyze the optimality of this new pricing practice which aims to generate additional demand. We provide an application of opaque products in the air transport industry due to the nature of the goods and the market conditions of low or uncertain demand that frequently faces and that has recently increased due to the Covid-19 pandemic. Opaque selling may help companies in dealing with excess capacity and generating extra revenues. We focus on how consumers’ risk attitude influences the optimality of opaque products. Moreover, we demonstrate that only if consumers are risk-averse, companies may apply an additional discount over the initial price of the opaque product. Otherwise, opaque selling is always optimal for dealing with excess capacity. However, we demonstrate, under different market conditions, the optimality of opaque selling with the mentioned discount.

Opaque products, uncertainty, pricing, capacity management

https://docs.lib.purdue.edu/itsa/ITSA2022/ITSA2022/43