Naming your own price mechanisms: Revenue gain or drain?

We experimentally study the profitability of pricing mechanisms that allow customers to quote their own prices, such as Priceline.com’s “Name-Your-Own-Price” (NYOP). Presumably firms find this sales method profit-maximizing despite the concerns that NYOP websites can cannibalize profit from standard distribution channels. Using a laboratory experiment we compare outcomes between NYOP and posted-price settings. We find that NYOP mechanisms that do not conceal information about products increase profit and consumer surplus. When NYOP channels conceal information about products there is no significant change in profit unless the threshold above which bids are accepted is set near marginal cost, whereby profit decreases.