We examine the case of items with a limited shelf-life where storing an item (before consumption) may carry a cost to a buyer (or distributor). For example, eggs, milk, or Groupon coupons have a fixed expiry date, and seasonal goods can suffer a decrease in value. We show how this setting contrasts with recent results by (arXiv:1509.07330(v5)) for items with infinite shelf-life. We prove tight bounds on the seller's profits showing how they relate to the items' shelf-life. We show, counterintuitively, that in our limited shelf-life setting, increasing storage costs can sometimes lead to less profit for the seller which cannot happen when items have unlimited shelf-life. We also provide an algorithm that calculates optimal prices. Finally, we examine empirically the relationship between profits and buyer utility as the storage cost and shelf-life duration change, and observe properties, some of which are unique to the limited shelf-life setting.
Companies in diverse industries must decide the pricing policy of their inventories over time. This decision becomes particularly complex when customers are forward looking and may defer a purchase in the hope of future discounts and promotions. With such uncertainty, many customers may end up not buying or buying at a significantly lower price, reducing the firm’s profitability. Recent studies show that a way to mitigate this negative effect caused by strategic consumers is to use a posted or preannounced pricing policy. With that policy, firms commit to a price path that consumers use to evaluate their purchase timing decision. In this paper, we propose a class of preannounced pricing policies in which the price path corresponds to a price menu contingent on the available inventory. We present a two-period model, with a monopolist selling a fixed inventory of a good. Given a menu of prices specified by the firm and beliefs regarding the number of units to be sold, customers decide whether to buy upon ar...