Price Discrimination in the Steel Market

John Rust (), Hui Man Chan and George Hall

No 44, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: This paper estimates a dynamic model of price discrimination and inventory investment under incomplete information. The model is motivated from an empirical analysis of operations of daily observations on inventories, sales, and purchases of over 2,300 individual products by a U.S. steel wholesaler. The model assumes the wholesaler has a distribution of beliefs about each retail customer's reservation values and posts individual take-it-or-leave-it offers to maximize discounted profits while simultaneously accounting for the firm's optimal inventory decisions. This model is compared to the case in which the the firm must post a uniform price to all customers. We simulate the estimated model and find that the simulated data exhibit the key features of inventory investment and pricing behavior we observe in the data.

Keywords: inventories; yield management; dyanmic programming (search for similar items in EconPapers)
JEL-codes: D21 E22 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (6)

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Working Paper: Price Discrimination in the Steel Market (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed004:44

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