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On the effect of competition and strategic consumer behavior in revenue management

University of British Columbia

In this thesis we investigate important issues in the area of dynamic pricing for revenue management. Studying the effect of competition and strategic consumer behavior, we characterize the dynamic pricing policies for retailers who sell homogeneous goods in multi-period, discrete time, finite horizon settings. In the first essay an impatient consumer visits only one of two competing retailers in each period. If he does not purchase the good, he visits the competing retailer in the ensuing period. Compared to the corresponding single store monopoly, when the consumer’s valuation is uniformly distributed, prices decline exponentially rather than linearly, with a dramatically lower initial price, and a substantially lower system profit. The model is extended to accommodate many consumers, who may be either identical or similar, a more general valuation distribution, and situations wherein capacities are limited. The base case of a centralized two-store monopoly is also examined. In the second essay the consumer may return to the same retailer with some certain probability. This probability is either affected by market structure characteristics, or it may depend on the consumer’s experience at the last store visited. The robustness of the exponential decline of prices is reinforced. It occurs even when a strong retailer faces competition from a relatively much weaker retailer. We investigate the impact of the return probabilities on prices, profits, and consumer surplus. The model is extended to an oligopoly, and to situations with many similar consumers. The effect of strategic consumer behavior on prices and profits is revealed in the third essay. Characterizing the pricing policies arising in a two-period monopoly and duopoly settings, we find that strategic consumer behavior inflicts larger losses to a duopoly than to a monopoly. A lower strategic consumers’ discounting factor, which is beneficial to a monopoly, may be harmful to a duopoly. Ignoring strategic consumer behaviour is costly to a monopoly, but may, on the other hand, be beneficial to a duopoly. An extension to three periods is studied, and with longer horizons the model is analyzed for the case when all the consumers are strategic.

Thesis/Dissertation

application/pdf

2008-02-13

Attribution-NonCommercial-NoDerivatives 4.0 International

http://hdl.handle.net/2429/335

Business Administration

University of British Columbia

UBCV

http://creativecommons.org/licenses/by-nc-nd/4.0/