AI

Dynamic Pricing for Heterogeneous Time-Sensitive Customers

Abstract

A core problem in the area of revenue management is pricing goods in the presence of strategic customers. We study this problem when customers are heterogeneous with respect to their initial valuations for the item and their time sensitivities, i.e., the customers differ in both their initial valuations and the rates at which their initial valuation decreases with delay in purchase. We characterize the optimal mechanism for selling durable goods in such environments and show that delayed allocation and dynamic pricing can be effective screening tools for maximizing firm profit. We also investigate the impact of production and holding costs on the optimal mechanism.