Dynamic pricing vs. pre-announced pricing in supply chain with consumer heterogeneity

Dynamic pricing and pre-announced pricing are prevalent operational strategies in practice. In this paper, we develop a two-period game-theoretical model to investigate the retailer's pricing strategy choice facing informed and uninformed consumers. Our analysis shows that in the centralized supply chain, when the fraction of uninformed consumers is small and the level of consumer patience is moderate, the retailer prefers to adopt pre-announced pricing strategy; otherwise, the retailer prefers to adopt dynamic pricing strategy. Our analysis also reveals that adopting either pricing strategy can simultaneously increase the retailer's profit and consumer surplus under certain conditions. In addition, our analysis suggests that in the decentralized supply chain, the dynamic pricing strategy adopted by the manufacturer and the retailer can benefit themselves and consumers, resulting in a win-win-win situation.

Automated summary

This paper develops a game-theoretical model to investigate the retailer's pricing strategy choice in the face of informed and uninformed consumers. The analysis shows that in a centralized supply chain, the retailer prefers pre-announced pricing when the fraction of uninformed consumers is small and consumer patience is moderate. However, if the fraction of uninformed consumers is high or consumer patience is low, the retailer prefers dynamic pricing. The analysis also reveals that adopting either pricing strategy can increase retailer's profit and consumer surplus under certain conditions. Furthermore, in a decentralized supply chain, the dynamic pricing strategy adopted by the manufacturer and retailer can benefit themselves and consumers, resulting in a win-win-win situation.