Correspondence: John G. Wilson, Richard Ivey School of Business, The University of Western Ontario, 1151 Richmond Street, London, ON, Canada N6A 3K7. Tel: +1 519 661 3867; Fax: +1 519 661-3485; E-mail: jwilson@ivey.ca

¹John G. Wilson is currently Professor in the Management Science area group at The Richard Ivey School of Business. He obtained his MSc in Mathematics from University College, Dublin and his PhD in Statistics from Carnegie-Mellon University. His research interests are in revenue management, reliability, Bayesian statistics and game theoretic applications. His research has been published in various journals including Management Science, Operations Research and Mathematics of Operations Research.

²Guoren Zhang is a PhD candidate majoring in Management Science at the Richard Ivey School of Business. He earned a Master's degree from McMaster University and a Bachelor's degree from Nankai University. His research focuses on how new technologies and approaches impact on traditional revenue management problems. He is also interested in supply chain coordination issues.

Received 4 January 2008; Revised 4 January 2008; Published online 23 May 2008.

Abstract

A retailer places a certain product (eg compact rental cars) for sale on the internet. Customers are invited to 'name-their-own price' for the product. The retailer will accept a given bid x with probability equal to p(.). It is assumed that customers know the function p(.) and will place bids that maximise their individual expected profits. Knowing that customers will behave this way, the retailer wants to choose the function p(.) that maximises the retailer's expected profit. We demonstrate that there is an explicit -optimal solution to this problem.