Revenue Management Without Commitment: Dynamic Pricing and Periodic Flash Sales
58 Pages Posted: 13 May 2014 Last revised: 8 Aug 2018
Date Written: August 6, 2018
A seller has a fixed number of goods to sell by a deadline. At each time, he posts a regular price and decides whether to hold a flash sale. Over time, buyers privately enter the market and strategically time their purchases. If a buyer does not purchase when she arrives, she can pay an attention cost to recheck the regular price afterwards, or she can wait for future flash sales where she may obtain a good at a discounted price. In the Markov perfect equilibrium, the seller sporadically holds flash sales to lower the stock of goods. A flash sale increases the willingness to pay of future buyers, but decreases the willingness to pay of buyers who arrive early in the game. When it is very likely that a buyer will obtain a good in a flash sale, the seller holds a ``big'' initial flash sale for all but one unit of the good.
Keywords: revenue management, commitment power, dynamic pricing, fire sales, inattention frictions
JEL Classification: D82, D83
Suggested Citation: Suggested Citation