Abstract
Production cost can be influenced by previous sales in an uncertain way. In reality, production cost may decrease in the number of initial buyers due to the learning effect, or increase in the number of initial buyers due to the quality-improving pressure from negative comments of unhappy users. Taking this uncertainty into account, this paper studies the optimal intertemporal pricing strategies of a firm when selling to strategic customers in two periods where production cost in the second period randomly changes with the number of buyers in the first period. Our results suggest how firms should adjust their optimal pricing strategies under different market circumstances.
Highlights
Production cost can be influenced by previous sales
We summarize our research questions as follows: 1. With the cost uncertainty, what are the optimal prices under two main pricing strategies —Dynamic Pricing and Price Commitment respectively?
Our paper mainly focuses on the pricing strategies of firms when facing the heterogeneous strategic customers and uncertain production cost
Summary
Production cost can be influenced by previous sales. On one hand, production cost can be reduced when the yield is increasing. Note that under dynamic pricing strategy with uncertain consumption externality, if the firm sells in both periods, the optimal price in the second period is an expectation instead of a certain value due to the realization of the cost uncertainty. ), strategic customers expect a low production cost and a low price in the second period.
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