PERIODIC PRICING OF SEASONAL PRODUCTS IN RETAILING

This paper studies intertemporal pricing policies when selling seasona l products in retail stores. We first present a continuous time model where a seller laces a stochastic arrival of customers with different valuations of the product. For this model, we characterize the optimal pricing policies as functions of time and inventory. We use this mode l as a benchmark against which we compare more realistic models that c onsider periodic pricing reviews. We show that the structure of the op timal pricing policies in this case is consistent with the procedures observed in practice; retail stores successively discount the product during the season and promote a liquidation sale at the end of the pla nning horizon. We also show that the loss experienced when implementin g periodic pricing reviews instead of continuous policies is small whe n the appropriate number of reviews is chosen. Several interesting eco nomic insights emerge from our analysis. For example, uncertainty in t he demand for new products leads to higher prices, larger discounts, a nd more unsold inventory. Finally, we study the effect of announced di scount policies on prices and profits. We show that stores that have a dopted this type of strategy usually set prices such that with high pr obability the merchandise is sold during the first periods and the lar gest discounts rarely take place.