Revenue Management with Forward-Looking Buyers

Simon Board and Andrzej Skrzypacz

Journal of Political Economy, 2016, vol. 124, issue 4, 1046 - 1087

Abstract: A seller wishes to sell multiple goods by a deadline, for example, the end of a season. Potential buyers enter over time and can strategically time their purchases. Each period, the profit-maximizing mechanism awards units to the buyers with the highest valuations exceeding a sequence of cutoffs. We show that these cutoffs are deterministic, depending only on the inventory and time remaining; in the continuous-time limit, the optimal mechanism can be implemented by posting anonymous prices. When incoming demand decreases over time, the optimal cutoffs satisfy a one-period-look-ahead property and prices are defined by an intuitive differential equation.

Date: 2016
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Working Paper: Revenue Management with Forward-Looking Buyers (2011)
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