Pricing strategies under markets with time gap between purchase and consumption

Abstract

In this study, we aim to determine the specific probability range, under which each price strategy outperforms others and expect how consumers react under the situation. In situations wherein consumer utility uncertainty is derived from the time gap between purchase and consumption, various pricing strategies, such as the early bird or option strategy, have been applied in order to resolve this uncertainty.Under an unconstrained capacity, early-bird strategy is mostly superior. Conversely, under a constrained capacity, there exists the probability range, under which the option provides both service providers and consumers more benefits than early-bird pricing. Consequently, pricing strategy should be considered based on the characteristics of the industry and the probability of the occurrence of a favorable event. The major contribution of this paper is specifically generalizing the probability condition under each pricing policy to provide both consumers and service providers the maximum utilities.