To sell or not to sell to an off-price retailer in the presence of strategic consumers

In the newsvendor model, strategic consumers choose between buying the product at the regular price or waiting to try to buy the product at the discount price. Retailers can benefit from the ability to decrease strategic consumers’ perceived probability of finding a unit available at the discount price. Selling some inventory to an off-price retailer, who has a large number of thrift consumers, enables retailers to change consumers’ perceived probability of product availability at a reduced price, but at a cost of losing some strategic consumers to the off-price retailer. We show that without the off-price retailer’s exclusive consumers and even if the off-price retailer buys the product for a price below the retailer’s cost, the retailer can still be better-off with the off-price retailer. We also find that the retailer benefits more when the off-price retailer charges higher price for the product and has a large consumer segment of its own.