Strategic Consumer Response to Dynamic Pricing of Perishable Products
35 Pages Posted: 19 Nov 2006
Date Written: October 2006
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: Suggested Citation