What the Past Tells About the Future: Historical Prices in the Durable Goods Market

We investigate how historical price information (e.g., accessed through price trackers) influences consumers' purchase decisions and thus affects a firm's dynamic pricing strategy. We first show that when consumers with heterogeneous tastes are not informed about historical prices, the monopolist charges a high regular price for most of the time and periodically holds low-price sales. Then we consider the case in which a small fraction of consumers (such as price tracker users) become informed of historical prices. At the new equilibrium, the monopolist lowers the regular price and advances sales, implying shorter price cycles, more frequent sales, and a positive spillover effect of price tracker users' informational advantage on the rest of uninformed consumers. We conclude with a discussion of the impact of price trackers on firms and other relevant managerial implications of the model.

Automated summary

This study investigates the impact of historical price information on consumers' purchase decisions and a firm's dynamic pricing strategy. The findings suggest that when consumers are not aware of historical prices, a monopolist charges a high regular price and holds periodic low-price sales. However, when a small fraction of consumers become informed about historical prices, the monopolist adjusts the regular price and sales strategy, resulting in shorter price cycles, more frequent sales, and a positive spillover effect on uninformed consumers.