Skimming or penetration: optimal pricing of new fashion products in the presence of strategic consumers

Peng Du () and Qiushuang Chen ()
Additional contact information
Peng Du: Nankai University
Qiushuang Chen: Nankai University

Annals of Operations Research, 2017, vol. 257, issue 1, No 11, 275-295

Abstract: Abstract Pricing for new products is usually a difficult task for a firm, for there always exists uncertainty of consumers’ valuation with respect to the new products. Moreover, the presence of strategic consumers even complicates the situation, due to their inter-temporal purchase choice behavior and their uncertain proportion in the whole demand pool. In this paper, facing the twofold uncertainty, we develop a stylized model to study the optimal pricing for new fashion products in the presence of strategic consumers. The optimal pricing strategy for the firm and the optimal purchase timing for strategic consumers are obtained; a framework is also built to investigate the expected value of demand information. Through numerical studies, we find that the price skimming strategy dominates the penetration strategy only when the firm’s discount factor is large enough, consumers’ strategic purchasing behavior diminishes the firm’s ability to adopt skim pricing, and the revealing strategy is most valuable when the firm is (almost) indifferent between skimming and penetration. In addition, some other managerial insights are also derived.

Keywords: Pricing; New products; Skimming; Penetration; Strategic consumers (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1007/s10479-014-1717-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-014-1717-0

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1007/s10479-014-1717-0

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().