Dynamic Pricing of Seasonal Product without Replenishment: A Discrete Time Analysis

Abstract

We study dynamic pricing of seasonal product in the revenue management context. A retailer places an order a long time before the beginning of a short selling season, knowing that dynamic pricing will be applied. There is no opportunity of inventory replenishment. Customer arrival follows a Poisson process. The realized demand intensity is price sensitive. We analyze this intensity control problem in a discrete time framework. The approach is applicable to all but one (the multiplicative) common demand models. Our numerical study shows that this approach is accurate. We also compare the performances of dynamic pricing and static pricing. We find that the value of dynamic pricing is significant as long as inventory is not abundant. We provide useful managerial insights for retailers and managers on when to adopt dynamic pricing policy and when to switch between the two pricing policies.