Emerald Management Reviews

Design/methodology/approach - Reviews a number of market and customer behaviour assumptions that can be made when modelling dynamic pricing: commitment to prices; price or quantity as a decision variable; capacity constraints and rationing; strategic interaction among customers; and risk preferences. Formulates a single seller's stocking decision problem under deterministic aggregate demand, taking into consideration the customer's decision and the firm's stocking decision; and then characterizes the firm's optimal stocking quantity, and examines how the amount of rationing risk is affected by the magnitude of price changes over time and the degree of risk aversion among customers. Presents numerical examples to illustrate these conditions. Examines several extensions to the basic problem: the situation where the firm is able to use the optimal prices for each period; the case in which the firm and customers discount profits and utilities over time; other valuation distributions and other utility functions; and a scenario of oligopolistic competition.

Findings - Shows that rationing can be a profitable strategy to influence the strategic behaviour of customers. Demonstrates, however, that the optimal amount of rationing is affected by the magnitude of price changes over time and the degree of risk aversion among customers; and that under oligopoly conditions, competition reduces the firm's ability to profit from rationing.

Research limitations/implications - Announces the intention to investigate the case where customers do not perfectly anticipate fill rates, but rather update their estimates over time based on experience.

Originality/value - Contributes to the understanding of strategic customer behaviour and its impact on pricing and quantity decisions.