Technical Note—On Revenue Management with Strategic Customers Choosing When and What to Buy

Abstract

In practice, when thinking about their purchasing decisions, customers usually strategize along two dimensions: (1) when to buy and (2) what to buy. That is, they might delay a purchase in anticipation of future price reductions, and/or they might purchase cheaper substitutes. Despite this, the literature has thus far dealt exclusively with either one of the two extremes whereby one of the two strategic dimension is missing. For example, a large body of work has studied forward-looking customers strategizing on when to buy but has done so merely within models in which customers have no alternatives to choose from. Conversely, another large body of work on assortment optimization and choice modeling has studied customers who choose what to buy from multiple product offerings but acting myopically. This paper takes a first step toward analyzing dynamic pricing when customers are fully strategic and choose both when and what to buy. Using a novel decomposition approach for the underlying multidimensional mechanism design problem, the paper presents theoretical and numerical performance analyses of static pricing policies.