Potential additional profits of selling a perishable product due to implementing price discrimination versus implementation costs

Firms that seek to undertake the course of price discrimination may face obstacles. Answering the question as to whether the implementation of price discrimination for perishables is beneficial from the perspective of the seller depends on the total costs of acquiring both consumption information and the technology. We analyze two models. The first model assumes that sufficient consumer information (e.g., purchasing history) and the technology for applying price discrimination are available to the decision maker (i.e., the retailer). The second represents the common situation where the price is identical to all, that is, price discrimination is not carried out. The optimal prices are derived. Our modeling indicates that even under deterministic demand mode, lost sales or surplus can be observed due to the absence of consumer information about sensitivity to a product's remaining time until expiration. Simulations for evaluating the effect of random demand noise on the relative profits obtained by both models surprisingly show that the gap between them decreases under demand noise. Numerical illustration indicates that the subjective prediction made by the retailer, who has no accurate consumer information about demand sensitivity, has a significant impact both on the proportion of the consumer population that benefits from possible price discrimination and on the retailer's expected profits.