Optimal pricing with speculators and consumers when the seller's supply capacity uncertainty

Abstract

This paper studies the optimal pricing for a monopoly firm under uncertain demand and souring from uncertain supply, which are often studied separately. The firm sets a price for consumers before demand uncertainty is resolved. Speculators enter the market purely with the intention of resale, which can be profitable if demand turns out to be high. The firm sets the discount price to attract speculators which aims at transferring the risk of unsold inventory to speculators when the supply is large sufficiently, it is different from other papers. The equilibrium is characterized by three critical values: the equilibrium price, discount factor and profits. © 2011 IEEE.