Intertemporal Pricing with Resellers: An Empirical Study of Product Drops

54 Pages Posted: 16 Apr 2021

See all articles by Dayton Steele

Dayton Steele

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

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: April 12, 2021

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 lost revenue with large markups in the resale market. Any firm in this position may ask, "How do resellers impact my profit?" To answer this question we build a dynamic structural model that can be used as a framework for managers to estimate the preferences of consumers that engage in strategic behavior to resell as well as capture the business requirement to sell inventory in a timely fashion. 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 that ignoring the resale market in pricing reduces firm profit by 7.0%.

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 (April 12, 2021). Available at SSRN: https://ssrn.com/abstract=3824987 or http://dx.doi.org/10.2139/ssrn.3824987

Dayton Steele (Contact Author)

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

McColl Building
Chapel Hill, NC 27599-3490
United States

Seyed Morteza Emadi

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

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

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