Dynamic Pricing of Fashionable Products with C2C Marketplaces and Strategic Consumers

Abstract

This paper studies the influence of C2C resale marketplaces on pricing decisions and revenue performance of a capacitated seller selling high-tech or fashion products. We consider a monopolist seller sells fashionable products to consumers over two periods. Consumers who purchased early can resell their used units in online marketplaces later if their realized valuations turn out to be low. Additionally, consumers can strategically choose when (the first period or the second period) and where (from the seller or from the marketplace) to purchase. We characterize strategic consumers' purchasing equilibrium, the equilibrium market-clearing price for the resale marketplace, and the seller's optimal pricing decisions. First, we demonstrate that when the seller is capacitated with limited inventory, the resale marketplace will always benefit the seller. The seller can further strengthen the benefit by designing products with superior quality, a long-lasting valuation, and through cultivating early markets. Second, we show that with high initial inventory, the seller benefits from the marketplace only when the first-period market size is comparatively smaller than that of the second period. Under such a scenario, the seller is better off designing fashion-oriented products with acceptable quality and attracting more non-tech-savvy consumers who typically arrive and purchase late. Finally, we show that a Buy-Back Program, through which consumers can sell their used units back to the primary seller at a discounted price, can influence consumers’ purchasing behavior and improve the seller's revenue performance.