article (43rd)

Clarisa Livia

16611022

This paper focuses on the intertemporal pricing strategies for fashion tech products with two opposite consumption externalities. Based on a heterogeneous customer model, we derive the optimal pricing strategies for different supply policies and market structures. We find that it is always optimal to set the price in the first period higher than that in the second period. In addition, when the availability of products is high and the fraction of followers is large (in other words, stockout probability and the fraction of snobs are small), it is optimal to reduce the price slightly, otherwise a sharp markdown strategy is better. When customers’ sensitivity to negative consumption externalities is stronger, the firm is more likely to set the price at a high level in the first period, but may not necessarily cut the price in the second period. Meanwhile, as the sensitivity to positive consumption externalities becomes stronger, the optimal price in the first period decreases and that in the second period increases.

There are several remaining research questions. First, we can extend our work to the strategies for more periods or with multiple objectives as the firm may consider the reputation or market share of the product over the long term. Second, we can combine pricing strategies with production strategies to take quantity constraints into account and make simultaneous decisions. Third, our work can be extended to include empirical studies identifying the relationship between the extent of consumption externalities and the intrinsic attributes of products.