Should conference pricing mechanisms incorporate options?

The provision of many services is often characterized by demand uncertainty, as, at the time of purchase, consumers may not be completely informed about their valuation for the service or the possibility to utilize the service when it will actually be provided. For such reason, service providers implement several pricing mechanisms to maximize their profits in presence of consumer uncertainty and heterogeneity. A commonly adopted mechanism is intertemporal price discrimination, under which service providers charge different prices to consumers buying at different times. For instance, a lower price is usually offered to consumer buying early in advance, whereas higher price is practiced to latecomers. More recently, an alternative pricing mechanism incorporating consumer options has been proposed. Under this mechanism, consumers are offered early in advance (and at a certain price) the right (but not the obligation) to purchase the service in the future. After uncertainty is resolved, the consumer will decide on whether to exercise the option by paying the exercise price or give up. In this paper, we compare the above mechanisms in the context of academic conference registration pricing mechanism. Specifically, we consider professors’ decisions of registering at a conference. Early in advance, some of them are (more) uncertain about their availability to attend the conference as some future, and perhaps more urgent, events may occur. Under intertemporal price discrimination, conference organizers take into account this possibility by offering early and late registration rates. However, conference organizers may instead decide to adopt a pricing mechanism based on consumer options. We investigate the consequences of using either mechanism analytically and then test them experimentally.