HEC Research Papers Series,
HEC Paris

Abstract: We consider a firm that faces the following pricing and leadtime disclosure decision. Either, (1) offer the same price to all arriving customers and disclose no leadtime information, in which case customers know only an expected leadtime, or, (2) vary the price dynamically based on the current inventory status, and disclose leadtime information dynamically. The second option allows the firm to offer a price discount for a long leadtime, and to offer a short leadtime when it has a large inventory. In order to determine which pricing and leadtime disclosure policy attains higher maximum profit, we formulate and solve a Markov decision problem for each policy and compare the two solutions. The comparison suggests that, typically, there is a critical inventory level, above which static pricing and no leadtime disclosure yields higher profit, and, below that level, dynamic pricing and leadtime disclosure yields a higher profit. We also identify certain situations where the static policy leads to profits at least as large as those under the dynamic policy, for any state, and we examine the price differences between the two policies. Finally, the structure of the solution is similar to the situation where the system manager can pause the production process, except that now this extra lever partly mitigates the superiority of the static policy.

Keywords: dynamic price; information disclosure; static policy; MDP

JEL-codes: L20

48 pages, September 18, 2020

Full text files

papers.cfm?abstract_id=3431895 HTML file Full text

Download statistics

• HEC Paris
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Antoine Haldemann ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:ebg:heccah:1382This page generated on 2024-09-13 22:19:53.