Dynamic Pricing with Heterogeneous Patience Levels

28 Pages Posted: 21 Mar 2017

See all articles by Ilan Lobel

Ilan Lobel

New York University (NYU)

Date Written: March 18, 2017

Abstract

We consider the problem of dynamic pricing in the presence of patient consumers. We call a consumer patient if she is willing to wait a certain number of periods for a lower price and will purchase as soon as the price is equal to or below her valuation. We allow for arbitrary joint distributions of patience levels and valuations. We propose an efficient dynamic programming algorithm for finding optimal pricing policies. The dynamic program requires a larger state space than its counterpart for a strategic consumers model. We find numerically that optimal policies can take the form of incomplete cyclic policies, combining features of both nested sales policies and decreasing cyclic policies.

Suggested Citation

Lobel, Ilan, Dynamic Pricing with Heterogeneous Patience Levels (March 18, 2017). Available at SSRN: https://ssrn.com/abstract=2936572 or http://dx.doi.org/10.2139/ssrn.2936572

Ilan Lobel (Contact Author)

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
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New York, NY 10003-711
United States

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