Rationing and pricing with strategic consumer behavior

Abstract

We study the optimal inventory and pricing of a fashion-like seasonal goods in a market containing both strategic and nonstrategic customers. We categorize strategies into three classes, different from each other in two dimensions: single stage versus two-stage pricing and rationing versus unrationing quantities. When discount rate is exogenous, research shows rationing and dynamic pricing outperforms other two strategies only if there is a sufficiently large segment of high-valuation customers and the proportion of strategic consumer is medium. When discount rate is endogenous, we conduct a comprehensive numerical study to explore the impact of discount in the second stage and find that only by applying appropriate discounts could retailers maximize profit, and excessive competition on discount would do harm to retailers.