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A Dynamic Theory of Random Price Discounts

Author

Listed:
  • Francesc Dilmé

    (University of Bonn)

  • Daniel Garrett

    (Toulouse School of Economics)

Abstract

A seller with commitment power sets prices over time. Risk-averse buyers arrive to the market and decide when to purchase. We obtain that the optimal price path is a “regular” price, with occasional episodes of sequential discounts that occur at random times. The optimal price path has the property that the price a buyer ends up paying is independent of his arrival and purchase times, and only depends on his valuation. Our theory accommodates empirical findings on the timing of discounts.

Suggested Citation

  • Francesc Dilmé & Daniel Garrett, 2022. "A Dynamic Theory of Random Price Discounts," ECONtribute Discussion Papers Series 191, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:191
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_191_2022.pdf
    File Function: First version, 2022
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    dynamic pricing; sales; random mechanisms;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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