Session 7 - Optimisation of constrained Markets

Question 1

Profit Optimisation

a) unconstrained markets

Answer 1

assumes supply is entirely flexible
demand is deterministic
only operating during a single period

Question 2

Profit Optimisation

b) constrained markets

Answer 2

not particularly a event but structural problem

• service providers (hotel rooms, gas pipeline, barbers n of seats, theatre seats)
• manufacturers (capacity production limits)
• retailer/wholesalers: non-replenishable goods (fashion goods)
• intrinsically scarce/unique items (diamonds)

Question 3

Constrained markets

Problem

Answer 3

if optimal unconstrained price corresponds to a demand which is bigger than capacity
–> not possible

Question 4

Constrained Markets
Problem
What to do?

Answer 4

a) do nothing - keep the price &C. buy (first come-first serve)
b) raise price (until demand falls to max. SR contribution margin)
c) Market-Segmentation & Allocate Price (to max. profit/revenue)
d) Variable Pricing/Revenue Management (Segment market &allocate most of the limited supply to higher pricing C (combo. of 2&3))