This Article Full Text (PDF) Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Google Scholar Articles by Su, X.

Optimal Pricing with Speculators and Strategic Consumers

Haas School of Business, University of California, Berkeley, Berkeley, California 94720
xuanming{at}haas.berkeley.edu

This paper studies a monopolist firm selling a fixed capacity. The firm sets a price before demand uncertainty is resolved. Speculators may enter the market purely with the intention of resale, which can be profitable if demand turns out to be high. Consumers may strategically choose when to purchase, and they may also choose to purchase from the firm or from the speculators. We characterize equilibrium prices and profits and analyze the long-run capacity decisions of the firm. There are three major findings. First, the presence of speculators increases the firm's expected profits even though the resale market competes with the firm. Second, by facilitating resale, the firm can mimic dynamic pricing outcomes and enjoy the associated benefits while charging a fixed price. Third, speculative behavior may generate incentives for the seller to artificially restrict supply, and thus may lead to lower capacity investments. We also explore several model extensions that highlight the robustness of our results.

Key Words: dynamic pricing; speculation; resale; strategic customer behavior; competition
History: Received: January 7, 2009; accepted: July 21, 2009.