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Competitive dynamic pricing under capacity constraints: An experimental study

Title	Competitive dynamic pricing under capacity constraints: An experimental study
Author	Bayram, A., Cesaret, Bahriye
Publication Date:	2024-07
Publication Place	- Sage
Subject	Behavioral operations, Revenue management, Competitive duopoly, Dynamic price competition
Type	Periodical
Language	English
Digital	Yes
Manuscript	No
Library:	Özyeğin University
Library Asset ID	1059-1478
Record ID	a16c71fe-1412-4191-9ec2-66a6afd4d02b
Library Location	Business Administration
Date	2024-07
Notes	University of Texas at Dallas (UT Dallas) ; TÜBİTAK ; Laboratory for Behavioral Operations and Economics at the Naveen Jindal School of Management
Sample Text	Keeping up with competitors' prices is one of the top operational challenges in pricing. However, competitive interactions in revenue management have not received much research attention in the past due to their complexity. We conduct a series of laboratory experiments to investigate the dynamic pricing behavior of two capacity-constrained firms under competition. Our experiments initially control for strategic interactions between the sellers and then allow for them. To gain a broader understanding, we also manipulate demand uncertainty and the expected market size. Our results confirm the dependency of dynamic pricing decisions on the competitor's behavior. We find that the theory is much more forgiving-in the sense that it predicts a lower level of competition among the sellers-than what we actually observe in the laboratory. The modeling literature indicates that the seller with the lower capacity has a competitive advantage, but our results reveal the opposite. Further, there is potential for high-capacity sellers to benefit from competition. Sellers tend to underprice (resp., overprice) their units at the beginning (resp., end) of a selling season. Also, competition lasts longer than the theory predicts, and customers benefit from the biases of the competing sellers. The higher-capacity seller following the best-response policy is not harmed due to the biases of the competitor. However, the lower-capacity seller's performance is greatly influenced by the competitor's degree of rationality.
DOI	10.1177/10591478241255667
Cilt	33

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Özyeğin University

Competitive dynamic pricing under capacity constraints: An experimental study

Author Bayram, A., Cesaret, Bahriye

Publication Date 2024-07

Publication Place - Sage

Subject Behavioral operations, Revenue management, Competitive duopoly, Dynamic price competition

Type Periodical

Language English

Digital Yes

Manuscript No

Library Özyeğin University

Library Asset ID 1059-1478

Record ID a16c71fe-1412-4191-9ec2-66a6afd4d02b

Library Location Business Administration

Date 2024-07

Notes University of Texas at Dallas (UT Dallas) ; TÜBİTAK ; Laboratory for Behavioral Operations and Economics at the Naveen Jindal School of Management

Sample Text Keeping up with competitors' prices is one of the top operational challenges in pricing. However, competitive interactions in revenue management have not received much research attention in the past due to their complexity. We conduct a series of laboratory experiments to investigate the dynamic pricing behavior of two capacity-constrained firms under competition. Our experiments initially control for strategic interactions between the sellers and then allow for them. To gain a broader understanding, we also manipulate demand uncertainty and the expected market size. Our results confirm the dependency of dynamic pricing decisions on the competitor's behavior. We find that the theory is much more forgiving-in the sense that it predicts a lower level of competition among the sellers-than what we actually observe in the laboratory. The modeling literature indicates that the seller with the lower capacity has a competitive advantage, but our results reveal the opposite. Further, there is potential for high-capacity sellers to benefit from competition. Sellers tend to underprice (resp., overprice) their units at the beginning (resp., end) of a selling season. Also, competition lasts longer than the theory predicts, and customers benefit from the biases of the competing sellers. The higher-capacity seller following the best-response policy is not harmed due to the biases of the competitor. However, the lower-capacity seller's performance is greatly influenced by the competitor's degree of rationality.

DOI 10.1177/10591478241255667

Cilt 33