Price decision analysis for perishable products under threat of entry: the case of vertical product differentiation

Perishable goods companies respond to competitive pressures through differentiated strategies, but pricing issues have become more complicated. This study analyses the optimal pricing of two companies offering vertically differentiated products to strategic customers who are intertemporal utility maximisers. It is assumed that incumbent companies respond to the entry threat of late-stage enterprises through pricing strategies. A two-period dynamic price game model is constructed under the price commitment and dynamic pricing strategies, and this problem is modelled based on the company's objective to maximise total expected profits and the optimal timing of the latecomer's entry. It is demonstrated through numerical examples that the timing of a latecomer entering the market under commitment pricing is delayed with the increase in a customers' strategic behaviour. It is also shown that an incumbent company adopting commitment pricing may have much higher profits than one that uses dynamic pricing. Interestingly, a lower customer pleasure level makes the incumbent company's revenue decline.