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Revenue Management with Forward-Looking Buyers

Author

Listed:
  • Andrzej Skrzypacz

    (Stanford GSB)

  • Simon Board

    (UCLA)

Abstract

We consider a seller who wishes to sell K goods by time T. Potential buyers enter IID over time and are forward-looking, so can strategically time their purchases. At any point in time, profit is maximized by awarding the good to the agent with the highest valuation exceeding a cutoff. These cutoffs are characterized by a one-period-look-ahead rule and are deterministic, depending only on the number of units and time remaining. The cutoffs decrease over time and in the inventory size, and are independent of the buyers' arrival times. In the continuous time limit, the seller's profits are maximized by posting anonymous prices, with an auction for the last unit at time T. Unlike the cutoffs, the optimal prices depend on the history of past sales.

Suggested Citation

  • Andrzej Skrzypacz & Simon Board, 2011. "Revenue Management with Forward-Looking Buyers," 2011 Meeting Papers 87, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:87
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