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Pricing of Service Advance Sale System with Risk Consideration

Khodakarami Mamaghani, Farnoosh | 2009

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 39628 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Sheikhzadeh, Mehdi
  7. Abstract:
  8. Today service sector is an important part of economy in many countries and it accounts for a great portion of GDP in developed countries. The importance of the service sector has led to an expansion in research worldwide on services. Service has some unique specifications that make it different from product and research in this field is more challenging than production field. Pricing is one of the great challenges in service sector. Due to its intangibility and perishability, managing and pricing of service is complicated and ervice firms consistently seek for method and approaches to better manage their demand, capacity and prices. Advance sale is an effective approach which is commonly used in many service fields for this purpose. In this research we have developed a comprehensive model for service advance sale that takes to accounts major important factors that affect pricing of services. Analyses have been done based on these factors to investigate their effect on expected profit and optimal prices. Risk averseness in one of the most important factor that affect the optimal decisions in service advance sale. Despite risky nature of service advance sale, risk considerations in service pricing and advance sale have been rarely addressed in literature due to its complexity. In this research, we take in to account risk considerations in model to investigate its consequences. In our model, we employed a stochastic Mean-Variance risk analysis introduced by Markowitz. The model is based upon maximization of expected firm’s profit subject to tolerable risk averseness coefficient. We demonstrate that having risk considerations can lead to totally different results. We have shown that when firms become more risk avers, their maximum expected profit will be less and the advance price is usually lower while spot prices will be higher in many occasions.

  9. Keywords:
  10. Pricing ; Risk ; Service Quality ; Advance Sale

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