Dynamic Pricing When Customers Strategically Time Their Purchase

Journal of Revenue and Pricing Management, Vol. 8, No. 1, pp. 42-66, 2009

Columbia Business School Research Paper

29 Pages Posted: 20 Oct 2011

See all articles by Matulya Bansal

Matulya Bansal

Columbia University - Columbia Business School

Costis Maglaras

Columbia University - Columbia Business School, Decision Risk and Operations

Date Written: July 21, 2008

Abstract

We study the dynamic pricing problem of a monopolist firm in presence of strategic customers that differ in their valuations and risk preferences. We show that this problem can be formulated as a static mechanism design problem, which is more amenable to analysis. We highlight several structural properties of the optimal solution, and solve the problem for several special cases. Focusing on settings with low risk-aversion, we show through an asymptotic analysis that the "two-price point" strategy is near-optimal, offering partial validation for its wide use in practice, but also highlighting when it is indeed suitable to adopt it.

Suggested Citation

Bansal, Matulya and Maglaras, Costis, Dynamic Pricing When Customers Strategically Time Their Purchase (July 21, 2008). Journal of Revenue and Pricing Management, Vol. 8, No. 1, pp. 42-66, 2009 , Columbia Business School Research Paper , Available at SSRN: https://ssrn.com/abstract=1946423

Matulya Bansal

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Costis Maglaras (Contact Author)

Columbia University - Columbia Business School, Decision Risk and Operations ( email )

New York, NY
United States

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