Approximation Algorithms for Product Framing and Pricing

Abstract

We propose one of the first models of "product framing" and pricing. Product framing refers to the way consumer choice is influenced by how the products are framed, or displayed. We present a model where a set of products are displayed, or framed, into a set of virtual web pages. We assume that consumers consider only products in the top pages, with different consumers willing to see different numbers of pages. Consumers select a product, if any, from these pages following a general choice model. We show that the product framing problem is NP-hard. We derive algorithms with guaranteed performance relative to an optimal algorithm under reasonable assumptions. Our algorithms are fast and easy to implement.

We also present structural results and design algorithms for pricing under framing effects for the multinomial logit model. We show that for profit maximization problems, at optimality, products are displayed in descending order of their value gap and in ascending order of their markups.