Dynamic pricing vs. pre-announced pricing in supply chain with consumer heterogeneity

Abstract

Dynamic pricing and pre-announced pricing are prevalent operational strategies in practice. In this paper, we develop a two-period game-theoretical model to investigate the retailer’s pricing strategy choice facing informed and uninformed consumers. Our analysis shows that in the centralized supply chain, when the fraction of uninformed consumers is small and the level of consumer patience is moderate, the retailer prefers to adopt pre-announced pricing strategy; otherwise, the retailer prefers to adopt dynamic pricing strategy. Our analysis also reveals that adopting either pricing strategy can simultaneously increase the retailer’s profit and consumer surplus under certain conditions. In addition, our analysis suggests that in the decentralized supply chain, the dynamic pricing strategy adopted by the manufacturer and the retailer can benefit themselves and consumers, resulting in a win-win-win situation.