We consider a setting where the firm sells a main service (e.g., air travel) and an ancillary service (e.g., in-flight meal) to two types of consumers: high type (e.g., business travelers) and low type (e.g., leisure travelers). The firm decides whether to unbundle the ancillary service from the main service and charge separate prices for different service components. We study the interaction between the optimal ancillary unbundling strategy and the firm’s use of main service price discrimination by analyzing two types of firms: firms that use uniform pricing of main service and firms that use discriminatory pricing of main service. We find that a uniform-pricing (respectively, discriminatory-pricing) firm should unbundle the ancillary service if the fraction of high-type consumers who value the ancillary service is large (respectively, small) enough. The difference hinges on the rationale that under uniform pricing, unbundling allows the firm to extract more ancillary surplus from high-type consumers; by contrast, under discriminatory pricing, bundling allows the firm to extract more ancillary surplus from consumers. Moreover, we find that unbundling the ancillary service and using main service price discrimination are strategic complements (respectively, strategic substitutes) if the correlation between consumers’ main service valuations and ancillary service valuations is low (respectively, high). The online appendix is available at https://doi.org/10.1287/msom.2017.0646 .

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Given the promise of three‐dimensional (3D) printing, also known as additive manufacturing, some innovative consumer goods companies have started to experiment with such a technology for on‐demand production. In this study, we consider two adoption cases of 3D printing in a dual‐channel (i.e., online and in‐store) retail setting, and evaluate its impact on a firm’s product offering, pricing, and inventory decisions. Our analysis uncovers the following effects of 3D printing. First, 3D printing at the factory has the substitution effect of technological innovation for online demands, as 3D printing replaces the traditional mode of production. Such technology substitution not only leads to increased product variety offered online, which allows the firm to charge a price premium for online customers, but also induces the firm to offer a smaller product variety and a reduced price in‐store. There is an additional environmental benefit when more customers are steered from the in‐store channel to the online channel. Second, when 3D printing is used in‐store as well, in addition to the substitution effect, the firm also achieves a structural effect due to the fundamental change in the supply chain structure. Since the in‐store demand is served in a build‐to‐order fashion, the firm achieves postponement benefits in inventory management. The environmental benefit is the most significant in this case. Moreover, using 3D printing in‐store will require a new supplier–retailer relationship. We find that cost‐sharing contracts can coordinate the supply chains where 3D printing is used in‐store and the supplier controls the raw material inventory.

In this paper, we study a conditional upgrade strategy that has recently become very common in the travel industry. After a consumer makes a reservation for a product (e.g., a hotel room), she is asked whether she would like to upgrade her product to a higher-quality (more expensive) one at a discounted price. The upgrade, however, is not fulfilled immediately. The firm fulfills upgrades at check-in if higher-quality products are still available, and the upgrade fee is only charged to the consumer if she gets upgraded. Consumers decide which product type to book and whether to accept an upgrade offer or not based on the anticipated upgrade probability. We model the consumers' decisions using a Poisson-arrival game framework with incomplete information and prove the existence of Bayesian Nash equilibrium. To further study the firm's optimal upgrade pricing strategy and develop managerial insights, we also analyze a fluid model which is the asymptotic version of the stochastic model. Our numerical studies validate that our theoretical results derived from the fluid model carry through to the stochastic model. Our analysis identifies multiple benefits of conditional upgrades. First, the firm is able to capture more demand by offering conditional upgrades, i.e., the consumers who value original product types lower than the original prices but value higher-quality products higher than the discounted price with upgrades. Second, conditional upgrades enable the firm to improve its market segmentation by inducing more consumers to purchase higher-quality products. Third, conditional upgrades give the firm more flexibility in better matching fixed capacities to stochastic demands. For a firm that is a price taker, offering conditional upgrades is effective in compensating for the firm's lack of ability in setting its prices optimally, and can sometimes generate even higher revenues than being able to optimize product prices. For a firm that has the ability to optimize product prices, conditional upgrades can generate higher revenues than dynamic pricing.

We are interested in whether preventing resale of tickets benefits the capacity providers for sporting and entertainment events. Common wisdom suggests that ticket resale is harmful to event organizers' revenues and event organizers have tried to prevent resale of tickets. For instance, Ticketmaster has recently proposed paperless (non-transferrable) ticketing which would severely limit the opportunity to resell tickets. We consider a model that allows resale from both consumers and speculators with different transaction costs for each party. Surprisingly, we find that this wisdom is incorrect when event organizers use fixed pricing policies, in fact event organizers benefit from reductions in consumers' (and speculators') transaction costs of resale. Even when multiperiod pricing policies are used, we find that an event organizer may still benefit from ticket resale if his capacity is small. While paperless ticketing is suggested as a way to reduce ticket resale and prevent speculators from buying tickets, our results suggest that it may reduce the capacity providers' revenues in many situations. Instead, we propose ticket options as a novel ticket pricing mechanism. We show that ticket options (where consumers would initially buy an option to buy a ticket and then exercise at a later date) naturally reduce ticket resale significantly and result in significant increases in event organizers' revenues. Furthermore, since a consumer only risks the option price (and not the whole ticket price) if she cannot attend the event, options may face less consumer resistance than paperless tickets.