Dynamic pricing considering strategic customers

Abstract

Dynamic pricing is increasingly applied to supply chain management and the key of successful application of dynamic pricing is to correctly understand consumer's behavior. In the face of a variety of dynamic pricing strategies, more and more consumers become smarter, and they forecast the future price before making a purchase decision. These types of consumers are called the strategic consumers, corresponding to the myopic consumers. In this paper, we study the dynamic pricing problem considering the strategic consumer behavior, and establish the game model between the retailer and consumers. First, we establish the dynamic pricing model of the retailer in the case of supply exceeding demand and demand exceeding supply. Second, we list the equilibrium conditions for the optimal dynamic pricing strategies, derive the optimal dynamic pricing strategies, and finally analyze the result with numerical simulation.