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Skimming or penetration: optimal pricing of new fashion products in the presence of strategic consumers

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  • Peng Du

    (Nankai University)

  • Qiushuang Chen

    (Nankai University)

Abstract

Pricing for new products is usually a difficult task for a firm, for there always exists uncertainty of consumers’ valuation with respect to the new products. Moreover, the presence of strategic consumers even complicates the situation, due to their inter-temporal purchase choice behavior and their uncertain proportion in the whole demand pool. In this paper, facing the twofold uncertainty, we develop a stylized model to study the optimal pricing for new fashion products in the presence of strategic consumers. The optimal pricing strategy for the firm and the optimal purchase timing for strategic consumers are obtained; a framework is also built to investigate the expected value of demand information. Through numerical studies, we find that the price skimming strategy dominates the penetration strategy only when the firm’s discount factor is large enough, consumers’ strategic purchasing behavior diminishes the firm’s ability to adopt skim pricing, and the revealing strategy is most valuable when the firm is (almost) indifferent between skimming and penetration. In addition, some other managerial insights are also derived.

Suggested Citation

  • Peng Du & Qiushuang Chen, 2017. "Skimming or penetration: optimal pricing of new fashion products in the presence of strategic consumers," Annals of Operations Research, Springer, vol. 257(1), pages 275-295, October.
    • Handle: RePEc:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-014-1717-0
    DOI: 10.1007/s10479-014-1717-0
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    Cited by:

    1. Lotfi, Ali & Naoum-Sawaya, Joe & Lotfi, Aslan & Jiang, Zhengrui, 2024. "To Skim or not to Skim: Studying the Optimal Pricing Strategy for Technology Products," Omega, Elsevier, vol. 127(C).
    2. Chang, Dongkyu & Lee, Jong Jae, 2022. "Price skimming: Commitment and delay in bargaining with outside option," Journal of Economic Theory, Elsevier, vol. 205(C).

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