Paper Info
Title
Purchasing Scarce Products Under Dynamic Pricing: An Experimental Investigation
Abstract
Whereas theoretical studies on dynamic pricing typically assume that consumers are either fully strategic or fully myopic, systematic empirical investigations into how consumers behave under dynamic pricing contexts are relatively rare. Focusing on scarce products, we constructed and experimentally tested a two-stage model in which a firm sells a seasonal good under exogenous inventory constraints to a market of strategic buyers. In our experiment, subjects assigned the role of buyers made purchase decisions in response to prices set by an automated seller. We find that equilibrium predictions assuming fully strategic buyers largely accounted for aggregate behavior in the experiment, and the ex post optimal decisions for subjects were overwhelmingly consistent with equilibrium prescriptions. Moreover, subjects tended to become individually more strategic as the session progressed. However, there were also nuanced systematic patterns of deviations from equilibrium that had profit and pricing implications for the seller. First, a nonnegligible minority of subjects exhibited completely myopic buying behavior even with practice. Second, when the product was relatively more scarce, myopic buying had a stronger impact on demand at higher prices; the upshot is that the seller's season-profit-maximizing price could be considerably higher than what would be optimal with fully strategic buyers.
Year
DOI
Venue
2014
10.1287/msom.2014.0480
Manufacturing & Service Operations Management
Keywords
Field
DocType
consumer behavior,game theory
Revenue management,Economics,Dynamic pricing,Consumer behaviour,Microeconomics,Game theory,Purchasing,Aggregate behavior
Journal
Volume
Issue
ISSN
16
3
1523-4614
Citations 
PageRank 
References 
4
0.42
9
Authors
4
Name
Order
Citations
PageRank
Vincent Mak1102.39
Amnon Rapoport27724.90
Eyran J. Gisches3183.36
Jiaojie Han440.76