Author:
Rainer Schlosser
Affiliation:
Hasso Plattner Institute, University of Potsdam, Potsdam and Germany
Keyword(s):
Dynamic Pricing, Strategic Customers, Price Anticipations, Waiting Customers, Reference Prices.
Related
Ontology
Subjects/Areas/Topics:
Artificial Intelligence
;
Business Analytics
;
Cardiovascular Technologies
;
Computing and Telecommunications in Cardiology
;
Data Engineering
;
Decision Analysis
;
Decision Support Systems
;
Decision Support Systems, Remote Data Analysis
;
Dynamic Programming
;
Game Theory
;
Health Engineering and Technology Applications
;
Knowledge-Based Systems
;
Methodologies and Technologies
;
Operational Research
;
Stochastic Optimization
;
Symbolic Systems
Abstract:
In many markets, customers strategically time their purchase by anticipating future prices and by checking offer prices multiple times. Typically, customers base their decisions on historical reference prices and their individual willingness-to-pay, which can change over time. For sellers it is challenging to derive successful pricing strategies as customers’ reservation prices cannot be observed. In this paper, we present a stochastic dynamic finite horizon framework to determine optimized price adjustments for selling perishable goods in the presence of strategic customers, which (i) recur and (ii) anticipate future prices based on reference prices. We analyze the impact of different strategic behaviors on expected profits and the evolution of sales. Compared to myopic settings, we find that recurring customers lead to higher average prices, delayed sales, and increased profits. The presence of forward-looking customers has opposing but less intense effects.