Intertemporal Price Discrimination And Sticky Prices PDF Download

A firm that sells a non perishable product considers intertemporal price discrimination in the objective of maximizing the long-run average revenue. Each period, a number of interested customers approach the firm and can either purchase on arrival, or remain in the system for a period of time. During this time, each customer's valuation changes following a discrete and homogenous Markov chain. Customers leave the system if they either purchase at some point, or their valuations reach an absorbing state v0. We show that, in this context, cyclic strategies are optimal, or nearly optimal. When the pace of intertemporal pricing is constrained to be comparable to customers patience level, we have a good control on the cycle length and on the structure of the optimizing cyclic policies. We also obtain an algorithm that yields the optimal (or near optimal) cyclic solutions in polynomial time in the number of prices. We cast part of our results in a general framework of optimizing the long-run average revenues for a class of payoffs that we call weakly coupled, in which the revenue per period depends on a finite number of neighboring prices.