Pricing in the presence of strategic consumers

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Supply chain management strives to minimize supply-demand mismatch. This objective is constantly challenged by changing environments, risks, and uncertainties. Many Canadian businesses, such as those in the travel and hospitality industries, engage in multi-period competitive dynamic pricing, where demand modelling plays a major role. These dynamic pricing decisions are operationalized through revenue management mechanisms, often commanding frequent price updates. An outcome of revenue management algorithms is price volatility, which can influence consumers’ purchase and timing decisions in ways that have not been studied yet by the academic literature. The proposed research will assemble rich datasets, primarily from the airline industry, to analyze and enhance our knowledge on the emerging trade-offs in the presence of price volatility or revenue managed goods. Insights generated from the empirical analysis will serve as the foundation for analytical game-theoretical multi-period dynamic programming models, capturing demand more realistically: traditional revenue management models will be redesigned and extended to incorporate the effects of price volatility for varying degrees of competition intensity and strategic consumer behaviour to identify optimal levels of price updates and their magnitudes. Strategic consumers take into account future realizations of prices and availability of goods, and time their purchase accordingly. Drawing on examples of the airline industry and of secondary markets (such as Amazon), two additional aspects will be explored. First, inventory decisions in the presence of uncertain demand; such decisions can critically affect the interaction between sellers and consumers and the resulting dynamic pricing decisions. Optimal inventory and corresponding pricing decisions will be proposed and I will investigate whether the sellers can leverage the presence of strategic consumers to increase profitability. Second, the emergence of online marketplaces, which compete with traditional distribution channels. These marketplaces provide consumers with an efficient channel to trade their goods and clear the market. I will research how the supply chain partners shall react to the emergence of secondary markets, how the goods should be dynamically priced, and whether such marketplaces can benefit retailers, suppliers, and consumers. This research will: (i) extend our knowledge and understanding of price volatility of revenue managed goods and the effects of strategic consumer behaviour; (ii) benefit firms in designing dynamic pricing algorithms as well as improving inventory decisions and supply chain coordination; (iii) serve policy makers in supporting consumers in such environments; and (iv) produce exceptionally well trained graduates with a sought after solid set of empirical and modeling skills with exposure to applications.