Dynamic Pricing of Fashionable Products with C2C Marketplaces and Strategic Consumers

40 Pages Posted: 8 Dec 2018 Last revised: 19 Jan 2020

See all articles by Mike Mingcheng Wei

Mike Mingcheng Wei

University at Buffalo

Michelle X. Wu

Massachusetts Institute of Technology (MIT) - Institute for Data, Systems, and Society (IDSS); Carson College of Business, Washington State University

John R. Birge

University of Chicago - Booth School of Business

Date Written: September 27, 2018

Abstract

This paper studies the influence of C2C resale marketplaces on pricing decisions and revenue performance of a capacitated seller selling high-tech or fashion products. We consider a monopolist seller sells fashionable products to consumers over two periods. Consumers who purchased early can resell their used units in online marketplaces later if their realized valuations turn out to be low. Additionally, consumers can strategically choose when (the first period or the second period) and where (from the seller or from the marketplace) to purchase. We characterize strategic consumers' purchasing equilibrium, the equilibrium market-clearing price for the resale marketplace, and the seller's optimal pricing decisions. First, we demonstrate that when the seller is capacitated with limited inventory, the resale marketplace will always benefit the seller. The seller can further strengthen the benefit by designing products with superior quality, a long-lasting valuation, and through cultivating early markets. Second, we show that with high initial inventory, the seller benefits from the marketplace only when the first-period market size is comparatively smaller than that of the second period. Under such a scenario, the seller is better off designing fashion-oriented products with acceptable quality and attracting more non-tech-savvy consumers who typically arrive and purchase late. Finally, we show that a Buy-Back Program, through which consumers can sell their used units back to the primary seller at a discounted price, can influence consumers’ purchasing behavior and improve the seller's revenue performance.

Keywords: secondary market; online C2C marketplaces; fashionable products; strategic consumer behavior; revenue management; game theory

Suggested Citation

Wei, Mike Mingcheng and Wu, Michelle X. and Birge, John R., Dynamic Pricing of Fashionable Products with C2C Marketplaces and Strategic Consumers (September 27, 2018). Available at SSRN: https://ssrn.com/abstract=3294824 or http://dx.doi.org/10.2139/ssrn.3294824

Mike Mingcheng Wei (Contact Author)

University at Buffalo ( email )

326C Jacobs Management Center
Buffalo, NY New York 14260
United States
7166455299 (Phone)

HOME PAGE: http://https://sites.google.com/site/mikemwei/

Michelle X. Wu

Massachusetts Institute of Technology (MIT) - Institute for Data, Systems, and Society (IDSS) ( email )

United States

Carson College of Business, Washington State University

Wilson Rd.
College of Business
Pullman, WA 99164
United States

John R. Birge

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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