Pricing and market segmentation using opaque selling mechanisms

In opaque pricing certain characteristics of the product or service are hidden from the consumer until after purchase, transforming a differentiated good into somewhat of a commodity. Opaque pricing has become popular in service pricing as it allows firms to sell their differentiated products at higher prices to regular brand loyal customers while simultaneously selling to non loyal customers at discounted prices. We develop a stylized model of consumer model a monopolist selling a product via three selling channels: a regular full information channel, an opaque posted price channel and an opaque bidding channel where consumers specify the price they are willing to pay. We illustrate the segmentation created by opaque pricing as well as compare optimal revenues and prices for sellers using regular full information channels with those using opaque selling mechanisms in conjunction with regular channels. We also study the segmentation and policy changes induced by capacity constraints.