Optimal Pricing with Speculators and Strategic Consumers

Authors:
Xuanming Su
Affiliations:
Haas School of Business, University of California, Berkeley, Berkeley, California 94720
Venue:
Management Science
Year:
2010

Citing 10
Cited 2

Electronic Tickets, Smart Cards, and Online Prepayments: When and How to Advance Sell

Marketing Science
The Making of a "Hot Product": A Signaling Explanation of Marketers' Scarcity Strategy

Management Science
Intertemporal Pricing with Strategic Customer Behavior

Management Science
Strategic Capacity Rationing to Induce Early Purchases

Management Science
Designing Optimal Preannounced Markdowns in the Presence of Rational Customers with Multiunit Demands

Manufacturing & Service Operations Management
Optimal Pricing of Seasonal Products in the Presence of Forward-Looking Consumers

Manufacturing & Service Operations Management
Purchasing, Pricing, and Quick Response in the Presence of Strategic Consumers

Management Science
On the Value of Commitment and Availability Guarantees When Selling to Strategic Consumers

Management Science
Optimal Markdown Pricing: Implications of Inventory Display Formats in the Presence of Strategic Customers

Management Science
Buy Now and Match Later: Impact of Posterior Price Matching on Profit with Strategic Consumers

Manufacturing & Service Operations Management

Dynamic Purchase Decisions Under Regret: Price and Availability

Decision Analysis
Advance Selling When Consumers Regret

Management Science

Quantified Score

Hi-index	0.01

Visualization

Abstract

This paper studies a monopolist firm selling a fixed capacity. The firm sets a price before demand uncertainty is resolved. Speculators may enter the market purely with the intention of resale, which can be profitable if demand turns out to be high. Consumers may strategically choose when to purchase, and they may also choose to purchase from the firm or from the speculators. We characterize equilibrium prices and profits and analyze the long-run capacity decisions of the firm. There are three major findings. First, the presence of speculators increases the firm's expected profits even though the resale market competes with the firm. Second, by facilitating resale, the firm can mimic dynamic pricing outcomes and enjoy the associated benefits while charging a fixed price. Third, speculative behavior may generate incentives for the seller to artificially restrict supply, and thus may lead to lower capacity investments. We also explore several model extensions that highlight the robustness of our results.