Revenue Management Without Commitment: Dynamic Pricing and Periodic Fire Sales

36 Pages Posted: 13 May 2014 Last revised: 24 Oct 2016

Francesc Dilme

University of Bonn

Fei Li

University of North Carolina (UNC) at Chapel Hill

Date Written: October 23, 2016

Abstract

A profit-maximizing monopolist seller has a fixed number of identical goods to sell before a deadline. Over time, buyers privately enter the market, and they strategically time their purchases. In the unique Markov perfect equilibrium, the seller sporadically holds fire sales to lower the stock of goods. This increases future buyers' willingness to pay, but it also lowers the willingness to pay of buyers who arrive early in the game. On the path of play, only one unit is offered in each fire sale, so buyers may be rationed. Interestingly, at the limit where the probability of a buyer being rationed vanishes, the seller gets rid of all but one unit of the good during a "big" initial fire sale.

Keywords: revenue management, commitment power, dynamic pricing, fire sales, inattention frictions

JEL Classification: D82, D83

Suggested Citation

Dilme, Francesc and Li, Fei, Revenue Management Without Commitment: Dynamic Pricing and Periodic Fire Sales (October 23, 2016). Available at SSRN: https://ssrn.com/abstract=2435982 or http://dx.doi.org/10.2139/ssrn.2435982

Francesc Dilme

University of Bonn ( email )

Lennestrasse 35
53113 Bonn
Germany
0049228737957 (Phone)

Fei Li (Contact Author)

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

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