Asymptotically Tight Bounds on the Optimal Pricing Strategy with Patient Customers
22 Pages Posted: 2 Mar 2020 Last revised: 4 Dec 2022
Date Written: July 14, 2021
We consider a market where most profit-relevant factors (e.g., storage costs and selling expenses) are negligible, and the trade-off between price and volume is the only concern. We investigate the optimal discrete-time pricing strategy of a monopolist seller who is able to change prices frequently when facing customers with different patience levels. We characterize the optimal strategy and unveil the asymptotic optimal cycle length and optimal revenue when the time step size goes to 0. It is found that a rational monopolist seller who wants to maximize revenue should not adjust prices frequently.
Keywords: Revenue maximization, Dynamic pricing, Customer behavior, Asymptotic property
JEL Classification: C
Suggested Citation: Suggested Citation