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Dynamic Pricing of Limited Inventories When Customers Negotiate Chia-Wei Kuo

Summary: Dynamic Pricing of Limited Inventories When Customers Negotiate
Chia-Wei Kuo
Department of Business Administration
National Taiwan University, Taipei, Taiwan, cwkuo@ntu.edu.tw
Hyun-Soo Ahn
Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109, hsahn@umich.edu
GĻoker Aydin
Kelley School of Business, Indiana University, Bloomington, IN 47405, ayding@indiana.edu
August 13, 2010
Although take-it-or-leave-it pricing is the main mode of operation for many retailers, a
number of retailers discreetly allow price negotiation when some haggle-prone customers ask for
a bargain. At these retailers, the posted price, which itself is subject to dynamic adjustments
in response to the pace of sales during the selling season, serves two important roles: (i) it is
the take-it-or-leave-it price to many customers who do not bargain, and (ii) it is the price from
which haggle-prone customers negotiate down.
In order to effectively measure the benefit of dynamic pricing and negotiation in such a retail
environment, one must take into account the interactions among inventory, dynamic pricing, and
negotiation. The outcome of the negotiation (and the final price a customer pays) depends on
the inventory level, the remaining selling season, the retailer's bargaining power, and the posted


Source: Aydin, Goker - Department of Operations and Decision Technologies, Indiana University Bloomington


Collections: Engineering