Mitigating the Adverse Impact of Strategic Waiting in Dynamic Pricing Settings: A Study of Two Sales Mechanisms

As post-season clearance sales become more prevalent, more customers postpone their purchases and wait for the clearance price. This form of strategic waiting can reduce retailers’ revenue. As a way to mitigate the negative effect of strategic waiting, we analyze two sales mechanisms in this chapter. The first sales mechanism deals with the way inventory information is conveyed to customers. Specifically, we consider two types of inventory display formats under which the retailer can either display all (DA) available units to the customers or display one (DO) unit at a time so that customers have perfect (imperfect) information about the actual inventory level under the DA (DO) display format. The second sales mechanism involves an additional purchasing option that allows each customer to make a “non-withdrawable reservation.” Specifically, if a customer reserves an item during the season and the reserved item remains unsold at the end of the season, then this customer is obligated to purchase the reserved item at the clearance price. In this chapter, we analyze the implications of these two sales mechanisms on the customers’ strategic purchasing behavior, the retailer’s optimal pricing and ordering decisions, and the retailer’s expected profit.