Optimal price skimming by a monopolist facing rational consumers
Management Science
Product Line Design and Production Technology
Marketing Science
Intertemporal Pricing with Strategic Customer Behavior
Management Science
Strategic Capacity Rationing to Induce Early Purchases
Management Science
Manufacturing & Service Operations Management
Optimal Pricing of Seasonal Products in the Presence of Forward-Looking Consumers
Manufacturing & Service Operations Management
Dynamic Pricing and Inventory Control of Substitute Products
Manufacturing & Service Operations Management
Buy Now and Match Later: Impact of Posterior Price Matching on Profit with Strategic Consumers
Manufacturing & Service Operations Management
Intertemporal Pricing and Consumer Stockpiling
Operations Research
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We consider a firm that sells two vertically (quality) differentiated products to strategically forward-looking consumers over two periods, setting the prices dynamically in each period. The consumers are heterogeneous in their evaluations of quality, and strategic in that they decide not only whether and which product variant to buy, but also when to buy, choosing the option that maximizes their utility. We derive the equilibrium of the pricing-purchasing game between the firm and the consumers. We find that the loss due to strategic customer behavior can be less with two product variants compared to the single-product benchmark, which indicates that product variety can serve as a lever when dealing with strategic customers. This benefit exists when the additional product has an inferior cost-to-quality ratio. Because of this benefit, a firm may find it attractive to sell a product variant that would be unprofitable otherwise. However, product variety can also hurt profitability due to strategic customer behavior: A product variant that would be profitable absent strategic customers can in fact be unprofitable. This can happen when customer impatience and firm costs are moderate.