Dynamic Pricing When Customers Strategically Time Their Purchase
Journal of Revenue and Pricing Management, Vol. 8, No. 1, pp. 42-66, 2009
29 Pages Posted: 20 Oct 2011
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.
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