Disclosing Inventory to Mitigate the Impact of Strategic Waiting on Profits

50 Pages Posted: 9 Jul 2008 Last revised: 19 Feb 2009

See all articles by Vincent Mak

Vincent Mak

University of Cambridge - Cambridge Judge Business School

Date Written: December 23, 2008

Abstract

A significant influence on the pricing and profits of seasonal product retail is strategic waiting, namely that sophisticated consumers, in anticipation of future markdowns, defer purchase even though the current price is already below their valuations of the target product. A possible means to mitigate the impact of strategic waiting on profits is to disclose inventory to consumers; but while several recent studies deal with similar issues, none examines the common scenario when, simultaneously, the seller does not pre-announce markdowns while consumers are "present" in the market throughout the season. Using a simple two-period model, we consider both possibilities together and obtain the following new insights: (1) if the seller does not disclose her inventory, she is not better off than when inventory was disclosed; (2) whether inventory is disclosed or not, if the seller does not discount future profits while consumers have time preference, it is always optimal to use a price skimming strategy even in the presence of strategic waiting; but if the seller discounts future profits, it is not optimal to attempt price skimming when inventory is below a threshold, and disclosure of inventory, despite its appeal, actually raises this threshold.

Keywords: Dynamic pricing, inter-temporal price discrimination, strategic buyers and sellers, inventory disclosure, game theory, consumer behavior

JEL Classification: C72, M31

Suggested Citation

Mak, Vincent, Disclosing Inventory to Mitigate the Impact of Strategic Waiting on Profits (December 23, 2008). Available at SSRN: https://ssrn.com/abstract=1157289 or http://dx.doi.org/10.2139/ssrn.1157289

Vincent Mak (Contact Author)

University of Cambridge - Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 (0)1223 764295 (Phone)
+44 (0)1223 339701 (Fax)

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