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Dynamic pricing when customers strategically time their purchase: Asymptotic optimality of a two-price policy

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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.Journal of Revenue and Pricing Management (2009) 8, 42–66. doi:10.1057/rpm.2008.48; published online 5 December 2008

Document Type: Research Article

DOI: http://dx.doi.org/10.1057/rpm.2008.48

Publication date: January 1, 2009

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