On the Threshold Purchasing Behavior of Customers Facing Dynamically Priced Perishable Products

August 26, 2005 Abstract Dynamic pricing is a standard practice that firms use for revenue management. With the vast availability of pricing data on the Internet, it is possible for consumers to become aware of the pricing strategies used by firms and to develop strategic responses. In this paper, we study the strategic response of customers to dynamic prices for perishable products. As price fluctuates with the changes in inventory and the elapse of time, a strategic customer may choose to postpone a purchase in anticipation of lower prices in the future. We analyze a threshold purchasing policy for the strategic customer, and conduct numerical studies to study its impact on both the strategic customer’s utility and the firm’s revenue. We find that in most cases the policy can benefit both the strategic customer and the firm. In practice, the firm could encourage customers waiting by adopting a target price purchasing system.