Inventories, Unobservable Heterogeneity and Long Run Price Elasticities

Perrone, Helena

doi:10.2139/ssrn.1581514

Cited by 5 publications

(3 citation statements)

References 22 publications

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“…Under these assumptions equation (5) is still valid in the single product case (i.e., if other products are either not present or are sold at a constant price) but we need an appropriate classi…cation of N and S periods: Naturally, we cannot de…ne a sale based on t + 1 prices, which are not yet known (absent perfect foresight). Given the distribution of future prices, as shown in Hong et al (2002) and Perrone (2010), there is a threshold below which the good is purchased for future consumption. We thus de…ne sale and non-sale periods based on the price thresholds.…”

Section: Rational Expectationsmentioning

confidence: 99%

Intertemporal Price Discrimination in Storable Goods Markets

Hendel

Nevo

2013

American Economic Review

173

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe study intertemporal price discrimination when consumers can store for future consumption needs. To make the problem tractable we o¤er a simple model of demand dynamics, which we estimate using market level data. Optimal pricing involves temporary price reductions that enable sellers to discriminate between price sensitive consumers, who anticipate future needs, and less price-sensitive consumers. We empirically quantify the impact of intertemporal price discrimination on pro…ts and welfare. We …nd that sales: (1) capture 25-30% of the pro…t gap between non-discriminatory and third degree price discrimination pro…ts, and (2) increase total welfare.We are grateful to Marciano Siniscalchi, and seminar participants for helpful comments.

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Section: Rational Expectationsmentioning

confidence: 99%

Intertemporal Price Discrimination in Storable Goods Markets

Hendel

Nevo

2013

American Economic Review

173

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“…Under these assumptions equation (5) is still valid in the single product case (i.e., if other products are either not present or are sold at a constant price) but we need an appropriate classification of  and  periods Naturally, we cannot define a sale based on  + 1 prices, which are not yet known (absent perfect foresight). Given the distribution of future prices, as shown in Hong et al (2002) and Perrone (2010), there is a threshold below which the good is purchased for future consumption. We thus define sale and non-sale periods based on the price thresholds.…”

Section: Rational Expectationsmentioning

confidence: 99%

Intertemporal Price Discrimination in Storable Goods Markets

Hendel¹,

Nevo²

2011

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We study intertemporal price discrimination when consumers can store for future consumption needs. To make the problem tractable we offer a simple model of demand dynamics, which we estimate using market level data. Optimal pricing involves temporary price reductions that enable sellers to discriminate between price sensitive consumers, who anticipate future needs, and less price-sensitive consumers. We empirically quantify the impact of intertemporal price discrimination on profits and welfare. We find that sales: (1) capture 25-30% of the profit gap between non-discriminatory and third degree price discrimination profits, and (2) increase total welfare.

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“…Erdem, Imai, and Keane () incorporate consumer heterogeneity by allowing for 16 types of consumers who differ in terms of both taste for the brands and usage rates. Perrone () develops a dynamic model of demand with inventories and estimates the structural parameters fully accounting for consumers' unobservable heterogeneity. Ferguson and Koenigsberg () assume that consumers are heterogeneous in their valuations of the product and are distributed uniformly in a given interval.…”

Section: Introductionmentioning

confidence: 99%

Optimal Pricing and Replenishment of an Expiring Inventoried Product under Heterogeneous Consumer Sensitivities

Herbon

2017

Decision Sciences

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Efficient pricing and replenishment decisions have the potential to yield significant increase in revenues. A widespread assumption in existing models of expiring inventories is that consumers are homogeneous in their sensitivities towards the factors that influence demand. Yet, there are numerous scenarios in which consumers may vary in terms of their sensitivities. In addition, most of the current literature addresses expiring inventories for which the perceived quality deteriorates over time, while models of perishables for which the quality remains stable over time (e.g., electronic devices) or increases (e.g., green bananas, or wine) have rarely been suggested. We analyze a joint pricing and replenishment optimization model that aims to maximize the retailer's profit and is general enough to consider these three types of expiring inventories, as well as heterogeneity in consumer sensitivities. In particular, our model considers the effects of remaining shelf‐life, price and perceived quality on demand. We obtain the optimal price given any cycle length and derive the FOC (first order condition) for obtaining the optimal cycle length. By numerical study, we show that the seller might gain significant profits in cases where consumers are highly heterogeneous either in their sensitivity to price or in their sensitivity to perceived quality. In contrast, the results indicate that the seller might lose significant profits (up to 16%) when consumers are highly heterogeneous in their sensitivity to expiration. Unexpectedly, the optimal price consumers pay is, in general, only moderately affected by the heterogeneity in consumer sensitivity.

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Inventories, Unobservable Heterogeneity and Long Run Price Elasticities

Cited by 5 publications

References 22 publications

Intertemporal Price Discrimination in Storable Goods Markets

Intertemporal Price Discrimination in Storable Goods Markets

Intertemporal Price Discrimination in Storable Goods Markets

Optimal Pricing and Replenishment of an Expiring Inventoried Product under Heterogeneous Consumer Sensitivities

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