Abstract
Many customers act strategically by checking offer prices multiple times and by anticipating future prices in order to optimize their surplus. In this context, customers base the timing of their purchase decisions on historical reference prices and their individual reservation prices. As customers’ reservation prices are not observable it is challenging for sellers to derive optimized pricing strategies. We present a stochastic dynamic finite horizon framework to compute price adjustments that account for strategic customers, that recur and anticipate future prices using observed reference prices. We show how iteratively derive reference prices that are consistent with the observed offer prices of a seller’s optimized feedback pricing strategy. We study how expected profits and the evolution of sales are affected by different strategic behaviors. We find that, on average, a recurring customer behavior leads to higher average prices, delayed sales, and increased profits. For the seller, the presence of forward-looking customers has opposing but less intense effects. For the customers, we find that recurring behaviors are not beneficial but can be overcompensated by forward-looking behaviors.
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Schlosser, R. (2020). Stochastic Dynamic Pricing with Waiting and Forward-Looking Consumers. In: Parlier, G., Liberatore, F., Demange, M. (eds) Operations Research and Enterprise Systems. ICORES 2019. Communications in Computer and Information Science, vol 1162. Springer, Cham. https://doi.org/10.1007/978-3-030-37584-3_3
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DOI: https://doi.org/10.1007/978-3-030-37584-3_3
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