Performance-Price-Ratio Utility : Market Equilibrium Analysis and Empirical Calibration Studies

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)1442–1456
Number of pages15
Journal / PublicationProduction and Operations Management
Issue number5
Online published23 Nov 2020
Publication statusPublished - May 2021


In this study, as an alternative to the surplus utility, we propose a performance-price-ratio (PPR) utility and specialize the customer choice model with a PPR maximization criterion. With the PPR-based choice model, we investigate a pricing game between retailers in a competitive market. Through transferring the decision variable from price to performance-price ratio, the first-order condition of the game becomes a linear equation system, which enables us to develop a closed-form equilibrium solution. The solution reveals how product performance and price sensitivity affect equilibrium pricing, market share, and revenue. With the developed theoretical results, we carry out empirical studies with a rich data set obtained from the China TV market. At the individual product level and the brand level, we calibrate the PPR-based choice model and the widely used surplus-based model with a Bayesian information criteria-based stepwise multivariate regression method. The regression results suggest that the PPR-based model fits both the product-level and brand-level data better than the surplus-based model. Through the stepwise selection of independent variables, we find that the leading features affecting a TV’s performance are 3D TV functionality and its screen size. Moreover, we explore how the market equilibrium evolves with the game decision sequence, market structure, and new product entry.

Research Area(s)

  • China TV market, customer choice, model calibration, performance-price ratio, pricing game

Citation Format(s)

Performance-Price-Ratio Utility: Market Equilibrium Analysis and Empirical Calibration Studies. / Xie, Yangyang; Xie, Lei; Lu, Meng et al.
In: Production and Operations Management, Vol. 30, No. 5, 05.2021, p. 1442–1456.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review