Intertemporal Pricing with Resellers: An Empirical Study of Product Drops

96 Pages Posted: 16 Apr 2021 Last revised: 3 Nov 2023

See all articles by Dayton Steele

Dayton Steele

University of Minnesota, Carlson School of Management

Seyed Morteza Emadi

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Saravanan Kesavan

University of North Carolina Kenan-Flagler Business School

Date Written: November 2, 2023

Abstract

Product drops occur when a retailer releases a limited-edition product line on a specific date for a short period of time. Due to limited inventory of the product and the short sales horizon, a resale market emerges where products may resell at higher prices once the firm stocks out. The firm faces a central trade-off: pricing too high may lead to a longer stock-out time and future markdowns; pricing too low may lead to transfer of profits to resellers. Any firm in this position may ask, “How do resellers impact my profit?” To answer this question we build a dynamic structural model that captures customer decisions to consume or strategically resell, as well as the firm’s intertemporal pricing decision in the presence of resellers. We estimate our model using a unique data set from a retailer of baby clothing with weekly product drops, where customers engage in a resale marketplace through Facebook groups. We find resale data collection and analysis is valuable to incorporate into pricing as firm profit increases by 8.8%, and reseller presence reduces firm profit by 5.8% even if resale data is used in pricing. These impacts are magnified by resale market growth, demonstrating that managers need to take action as resale markets gain wider adoption.

Keywords: Retail, Structural Modeling, Dynamic Pricing, Resale Marketplaces, Product Drops

Suggested Citation

Steele, Dayton and Emadi, Seyed Morteza and Kesavan, Saravanan, Intertemporal Pricing with Resellers: An Empirical Study of Product Drops (November 2, 2023). Available at SSRN: https://ssrn.com/abstract=3824987 or http://dx.doi.org/10.2139/ssrn.3824987

Dayton Steele (Contact Author)

University of Minnesota, Carlson School of Management ( email )

Minneapolis, MN 55455
United States

Seyed Morteza Emadi

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Saravanan Kesavan

University of North Carolina Kenan-Flagler Business School ( email )

300 Kenan Center Drive
Chapel Hill, NC 27599
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
328
Abstract Views
1,035
Rank
170,026
PlumX Metrics