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Competitive dynamic pricing with alternating offers: Theory and experiment

Author

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  • Mak, Vincent
  • Rapoport, Amnon
  • Gisches, Eyran J.

Abstract

We propose an equilibrium model of duopolistic dynamic pricing in which a buyer alternates between two sellers for price offers over a finite time horizon. The game ends when the buyer accepts a price offer or the selling season is over, whichever comes first. Previous research (Granot et al., 2007) shows that there are successive markdowns in equilibrium when the buyer is commonly known to be myopic; our analysis suggests that when she is known to be strategic price offers over the entire selling season are constant. Moreover, lengthening the season increases (generally decreases) both sellersʼ profits when the buyer is myopic (strategic). An experimental study largely supports the equilibrium predictions when the buyer is myopic but not when she is strategic. In the latter case, early in the season sellers overprice the good arguably in an attempt to effectively shorten the season and thereby increase their profits.

Suggested Citation

  • Mak, Vincent & Rapoport, Amnon & Gisches, Eyran J., 2012. "Competitive dynamic pricing with alternating offers: Theory and experiment," Games and Economic Behavior, Elsevier, vol. 75(1), pages 250-264.
  • Handle: RePEc:eee:gamebe:v:75:y:2012:i:1:p:250-264
    DOI: 10.1016/j.geb.2011.08.018
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    References listed on IDEAS

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    1. repec:gam:jeners:v:11:y:2018:i:2:p:458-:d:132747 is not listed on IDEAS
    2. Aoyagi, Masaki & Bhalla, Manaswini & Gunay, Hikmet, 2016. "Social learning and delay in a dynamic model of price competition," Journal of Economic Theory, Elsevier, vol. 165(C), pages 565-600.
    3. repec:gam:jgames:v:9:y:2018:i:1:p:10-:d:132752 is not listed on IDEAS
    4. Mak, Vincent & Rapoport, Amnon & Seale, Darryl A., 2014. "Sequential search by groups with rank-dependent payoffs: An experimental study," Organizational Behavior and Human Decision Processes, Elsevier, vol. 124(2), pages 256-267.

    More about this item

    Keywords

    Dynamic pricing; Competitive duopoly; Strategic vs. myopic buyers; Experimental economics;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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