The Role of Customer Screening and Waiting in Inventory Models with Dynamic Pricing

Project: Research

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The first decade of the new millennium features the emergence of innovative business models for revenue maximization or revenue management, such as group buying, name-your-own-price (NYOP), just to name a few. Those new business models have one thing in common in terms of customer characteristics: customers review the price from time to time and optimize their purchasing time. We denote this customer behavior asscreening-and-waiting. Hence, to model the above customer screening and waiting behavior becomes important for the performance evaluation of those models. We would like to point out that the customer screening and waiting behavior has also been one of the notable missing links in the revenue management literature where customers are largely assumed to be acome-buy-and-leavebehavior. This missing link has attracted much attention recently in the context of strategic customer behavior. However, key questions have not yet been fully answered. For example, what is the impact of waiting customers to traditional revenue management models? How do we model the screening and waiting behavior as a common ground for comparisons among different business models? In this project, we plan to set out a series of research questions to address the aforementioned problems: 1) the dynamic demand modeling of the customer screening and waiting behavior, 2) the dynamic programming formulation for inventory models with dynamic pricing in presenting the customer screening and waiting behavior, 3) the study of the form of the optimal dynamic pricing policy and its associated structural properties, and 4) the performance evaluation of dynamic pricing and its comparison with alternative revenue management mechanisms. We intend to quantify the impact of the screening and waiting behavior and identify important factors as well. In addition to generate publications in leading journals, we also expect that our results could be useful for firms to choose the right mechanism and appropriately implement it under various market conditions.


Project number9041969
Effective start/end date1/09/1331/08/17