Disclosing Inventory to Mitigate the Impact of Strategic Waiting on Profits

Abstract

A significant influence on the pricing and profits of seasonal product retail is strategic waiting, namely that sophisticated consumers, in anticipation of future markdowns, defer purchase even though the current price is already below their valuations of the target product. A possible means to mitigate the impact of strategic waiting on profits is to disclose inventory to consumers; but while several recent studies deal with similar issues, none examines the common scenario when, simultaneously, the seller does not pre-announce markdowns while consumers are present in the market throughout the season. Using a simple two-period model, we consider both possibilities together and obtain the following new insights: (1) if the seller does not disclose her inventory, she is not better off than when inventory was disclosed; (2) whether inventory is disclosed or not, if the seller does not discount future profits while consumers have time preference, it is always optimal to use a price skimming strategy even in the presence of strategic waiting; but if the seller discounts future profits, it is not optimal to attempt price skimming when inventory is below a threshold, and disclosure of inventory, despite its appeal, actually raises this threshold.