Dynamic pricing under demand uncertainty in the presence of strategic consumers
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Date
2011-08-26T18:32:51Z
Authors
Meng, Yinhan
Journal Title
Journal ISSN
Volume Title
Publisher
University of Waterloo
Abstract
We study the effect of strategic consumer behavior on pricing, inventory
decisions, and inventory release policies of a monopoly retailer selling a
single product over two periods facing uncertain demand. We consider the
following three-stage two-period dynamic pricing game. In the first stage the
retailer sets his inventory level and inventory release policy; in the second
stage the retailer faces uncertain demand that consists of both myopic and
strategic consumers. The former type of consumers purchase the good if their
valuations exceed the posted price, while the latter type of consumers
consider future realizations of prices, and hence their future surplus, before
deciding when to purchase the good; in the third stage, the retailer releases
its remaining inventory according to the release policy chosen in the first stage.
Game theory is employed to model strategic decisions in this setting. Each of the strategies available to the players in this setting (the consumers and the retailer) are solved backward to yield the subgame
perfect Nash equilibrium, which allows us to derive the equilibrium pricing policies.
This work provides three primary contributions to the fields of dynamic
pricing and revenue management. First, if, in the third stage, inventory is
released to clear the market, then the presence of strategic consumers may be
beneficial for the retailer. Second, we find the optimal inventory release
strategy when retailers have capacity limitation. Lastly, we numerically
demonstrate the retailer's optimal decisions of both inventory level and the
inventory release strategy. We find that market clearance mechanism and
intermediate supply strategy may emerge as the retailers optimal choice.
Description
Keywords
Strategic consumers, Uncertain demand