Dynamic Pricing of Perishable Assets Under Competition

Abstract

W e study dynamic price competition in an oligopolistic market with a mix of substitutable and complementary perishable assets. Each firm has a fixed initial stock of items and competes in setting prices to sell them over a finite sales horizon. Customers sequentially arrive at the market, make a purchase choice, and then leave immediately with some likelihood of no purchase. The purchase likelihood depends on the time of purchase, product attributes, and current prices. The demand structure includes time-variant linear and multinomial logit demand models as special cases. Assuming deterministic customer arrival rates, we show that any equilibrium strategy has a simple structure, involving a finite set of shadow prices measuring capacity externalities that firms exert on each other: equilibrium prices can be solved from a one-shot price competition game under the current-time demand structure, taking into account capacity externalities through the time-invariant shadow prices. The former reflects the transient demand side at every moment, and the latter captures the aggregate supply constraints over the sales horizon. This simple structure sheds light on dynamic revenue management problems under competition, which helps capture the essence of the problems under demand uncertainty. We show that the equilibrium solutions from the deterministic game provide precommitted and contingent heuristic policies that are asymptotic equilibria for its stochastic counterpart, when demand and supply are sufficiently large.

Optimal dynamic pricing and replenishment cycle for non-instantaneous deterioration items with inventory-level-dependent demand

“…Chew et al (2014) formulated an inventory model for perishable items to determine the optimal order quantity and the prices with a multiple period lifetime. Gallego and Hu (2014) investigated dynamic price competition in an oligopolistic market with a mix of substitutable and complementary perishable assets. Each firm had a fixed initial stock of items and competed in setting prices over a finite sales horizon.…”

Coordinated Pricing Analysis with the Carbon Tax Scheme in a Supply Chain*

“…Note that the open‐loop equilibrium presents the original best decisions, which make it easier to derive tractable strategies. If the manufacturer and suppliers adopt the open‐loop strategy, they can make an irreversible precommitment decision only at the beginning of the game (Gallego & Hu, ). However, the open‐loop equilibrium is time‐inconsistent.…”

Integrated supply chain management for perishable products: Dynamics and oligopolistic competition perspectives with application to pharmaceuticals

“…Wiggins and Maness (2004) study price competition for the case of anti-infectives. Perakis and Sood (2006) and Gallego and Hu (2014) study dynamic or multi-period pricing of perishable products under competition. Magazzini et al (2004) propose a model of dynamic competition in pharmaceuticals for the case of patent expiration in major developed countries such as the USA, France, Germany, and the UK.…”