Published online by Cambridge University Press: 15 September 2015
We present a simple static way of optimizing the prices of bottles of wine for restaurants with a given cellar. In contrast to classical assortment pricing models, we posit that the cellar (i.e., inventory) is given and is not taken as a variable entering the optimization program. In our model, the optimal price is driven mainly by a rating parameter after the effect of initial cost is removed. This parameter plays the role of a dominant characteristic in hedonic models, even though the levels of stocks may also be determinant when they are very low. We provide a numerical sensitivity analysis of prices to various parameters and study a realistic large-scale example based on two wine lists with 50 bottles each. Finally, several extensions are discussed. (JEL Classifications: C61, L11, L83)
We are indebted to an anonymous referee for his/her numerous comments, which have lead to a considerable improvement of the practical facets of this paper (notably the analyses in Section IV).