Pre-announced Pricing Strategies with Reservations

Abstract

At the beginning of the selling season, the retailer announces both the price ph at which the product will be sold during the selling season and the post-season clearance price p` < ph for unsold items. Customers arrive in accord with a Poisson process, and each of the n + 1 customer classes has a class-specific valuation. We analyze two operating regimes. Under the reservation regime, a buyer either can purchase the product (if available) at price ph or reserve the product for purchase at the clearance price p`. If the buyer reserves the product and if it remains unsold at the end of the selling season, then he is obligated to purchase it at price p`. Under the no reservation regime, a buyer either purchases the product when he arrives at price ph or he enters a lottery to purchase at price p` if the product remains unsold. In the presence of stochastic arrivals, we characterize rational purchasing behavior wherein each buyer takes other buyers’ purchasing behavior into consideration, and we analyze the retailer’s expected payoff and the customer’s expected surplus under the two operating regimes.

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Cite this paper

@inproceedings{ElmaghrabyPreannouncedPS, title={Pre-announced Pricing Strategies with Reservations}, author={Wedad Elmaghraby and Steven A. Lippman and Christopher S. Tang and Rui Yin} }