Costis Maglaras

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

Coauthor(s): Matulya Bansal.

Download:

Adobe Acrobat PDF

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.

This is a pre-print of an article published in the Journal of Revenue and Pricing Management in January 2009. The definitive publisher-authenticated version is available online at < http://dx.doi.org/10.1057/rpm.2008.48 >.

Source: Journal of Revenue and Pricing Management
Exact Citation:
Bansal, Matulya, and Costis Maglaras. "Dynamic pricing when customers strategically time their purchase: Asymptotic optimality of a two-price policy." Journal of Revenue and Pricing Management 8, no. 1 (January 2009): 42-66.
Volume: 8
Number: 1
Pages: 42-66
Date: 1 2009