Olin School of Business
This paper includes the study of optimal pricing of fashion-like seasonal goods, in the presence of forward looking customers that have declining valuations for the product over the course of the season. When the seller pre-announces a price-path, it is shown consumers experience a tension between immediate purchases and returns to the store at a later discount time. In a rational expectations equilibrium, consumers purchase according to thresholds that depend on the pricing path as well as the point in the selling season, and current inventory levels. Paper deduce that if sellers incorrectly assume that forward looking customers are if fact myopic, they risk loosing significant potential revenues, of up to 30%. Article concludes about study that with a discussion of contingent discounting strategies, relaxing the need for the seller to commit to a pre-announced price-path. Read for further apprehension.