A Dynamic Theory of Random Price Discounts

Francesc Dilme and Daniel Garrett ()
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Daniel Garrett: Toulouse School of Economics

No 191, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: A seller with commitment power sets prices over time. Risk-averse buyers arrive to the market and decide when to purchase. We obtain that the optimal price path is a “regular” price, with occasional episodes of sequential discounts that occur at random times. The optimal price path has the property that the price a buyer ends up paying is independent of his arrival and purchase times, and only depends on his valuation. Our theory accommodates empirical findings on the timing of discounts.

Keywords: dynamic pricing; sales; random mechanisms (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2022-08
New Economics Papers: this item is included in nep-com, nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:191

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