Revenue Management Without Commitment: Dynamic Pricing and Periodic Fire Sales
50 Pages Posted: 13 May 2014 Last revised: 5 Oct 2017
Date Written: October 4, 2017
A 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: Suggested Citation