Dynamic Pricing of Fashion Products: The Effects of Demand Learning and Strategic Consumer Behavior

In this seminar, we will present a dynamic-pricing model of a retailer that sells a product in a market where consumers exhibit strategic behavior. A key feature of the model is that the seller can learn about the market size through initial sales observations. This raises an interesting phenomenon: via their decision to purchase or wait, consumers influence the seller’s perception about the market size. We will discuss the implication of the latter point on the effectiveness of price segmentation, and examine the value of price commitment strategies. We will also present a model of a “naïve” retailer that does not incorporate learning from early sales into its pricing process. This leads to an interesting question: Is it better for a retailer to become sophisticated (capable of learning), when facing strategic consumers?

Professor Aviv develops and applies operations research models and methods to study problems related to supply chain management and revenue management. His current research focuses on strategic inventory positioning in distribution networks, collaborative forecasting, and dynamic pricing. He holds several editorial positions, and serves as a Department Editor (Area of Operations Management) for Management Science.