Strategic Consumer Response to Dynamic Pricing of Perishable Products

35 Pages Posted: 19 Nov 2006

See all articles by Yong-Pin Zhou

Yong-Pin Zhou

University of Washington Business School

Ming Fan

University of Washington - Michael G. Foster School of Business

Minho Cho

University of Washington - Department of Information Systems and Operations Management

Date Written: October 2006

Abstract

Dynamic pricing is a standard practice that sellers use for revenue management. With the vast availability of pricing and inventory data on the Internet, it is possible for consumers to become aware of the pricing strategies used by sellers and to develop strategic responses. In this paper, we study the strategic response of consumers to dynamic prices for perishable products. As price fluctuates with the changes in time and inventory, a strategic consumer may choose to postpone a purchase in anticipation of lower prices in the future. We analyze a threshold purchasing policy for the strategic consumer, and conduct numerical studies to study its impact on both the strategic consumer's benefits and the seller's revenue. We find that in most cases the policy can benefit both the strategic consumer and the seller. In practice, the seller could encourage consumers waiting by adopting a target price purchasing system.

Keywords: Revenue management, dynamic pricing, strategic consumer response, threshold purchase policies

JEL Classification: D11, D42, C61, R32

Suggested Citation

Zhou, Yong-Pin and Fan, Ming and Cho, Minho, Strategic Consumer Response to Dynamic Pricing of Perishable Products (October 2006). Available at SSRN: https://ssrn.com/abstract=945284 or http://dx.doi.org/10.2139/ssrn.945284

Yong-Pin Zhou (Contact Author)

University of Washington Business School ( email )

Box 353200
University of Washington Business School
Seattle, WA 98195-3200
United States
(206) 221-5324 (Phone)
(206) 543-3968 (Fax)

HOME PAGE: http://faculty.washington.edu/yongpin

Ming Fan

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Minho Cho

University of Washington - Department of Information Systems and Operations Management ( email )

Box 353200
Seattle, WA 98195-3200
United States

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