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A Dynamic Theory of Random Price Discounts

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  • Francesc Dilmé
  • Daniel F. Garrett

Abstract

A seller with commitment power sets prices over time. Risk‐averse buyers arrive to the market and decide when to purchase. We show that it is optimal for the seller to choose a constant high price punctuated by occasional episodes of sequential discounts that occur at random times. This 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 F. Garrett, 2025. "A Dynamic Theory of Random Price Discounts," CRC TR 224 Discussion Paper Series crctr224_2025_688, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_688
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp688
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    References listed on IDEAS

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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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