In the Shadow of the Past: The Impact of Historical Price Information on Dynamic Selling Strategies for a Single Asset Whose Value is Not Perfectly Known
52 Pages Posted: 31 Jan 2010 Last revised: 6 Feb 2010
Date Written: January 28, 2010
Cheap information technology has increased the availability of historical price information to strategic consumers in many environments. This information may impact the consumer's purchasing behavior. We study how a seller should react in such a scenario. We focus on a seller of a single asset whose value is not perfectly known to either the seller or the potential buyers. Revealing the history of prices at which the asset has not been sold may cause future strategic potential buyers to revise downward their willingness to pay for the asset. Hence, it is not clear that the seller will want to reveal such historical price information. Nevertheless, we find that the seller may be worse off when concealing this information. The reason is that when concealing the historical information, strategic potential buyers may revise their willingness to pay much more steeply downward upon observing a price reduction. This provides an incentive to the seller to maintain a too-high price for too long. It may be that the costs of this incentive outweigh the revenue decrease resulting from the reduction in willingness to pay when revealing historical price information.
Keywords: Operations Management, Revenue Management, Herding Models
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