Pricing of perishable products with a speculator and strategic customers

This study develops a two-stage dynamic pricing strategy for the retailer based on the consideration of the number of myopic consumers, the reservation prices of bargain-hunting consumers, the deferral purchases of strategic customers, and the arbitrage behavior of the speculator with an aim to maximize the revenue from selling such a perishable product. Likewise, upon learning the retailer’s price, the speculator and strategic consumers would develop their own purchasing strategies accordingly. A backward induction procedure is employed to analyze the related decisions regarding the retailer and the speculator. This study deals with the competitive condition by the use of game theory to all players. According to the results of the numerical analyses, there are two major findings. First, more strategic consumers would result in more deferral purchases, and more revenue is anticipated by the speculator on condition that the retailer had sold out his inventory on hand in the primary selling stage. Second, the speculator acts as a dynamic pricing mechanism in the market, and is able to reduce the retailer’s risk under specific conditions, and thus the existence of a speculator seems harmless and profitable for the retailer.