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Games 2018, 9(1), 10; https://doi.org/10.3390/g9010010

Dynamic Pricing Decisions and Seller-Buyer Interactions under Capacity Constraints

1
Cambridge Judge Business School, University of Cambridge, Cambridge CB2 1AG, UK
2
Eller College of Management, University of Arizona, Tucson, AZ 85721-0128, USA
*
Author to whom correspondence should be addressed.
Received: 26 December 2017 / Revised: 13 February 2018 / Accepted: 18 February 2018 / Published: 22 February 2018
(This article belongs to the Special Issue Logistic Games)
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Abstract

Focusing on sellers’ pricing decisions and the ensuing seller-buyer interactions, we report an experiment on dynamic pricing with scarcity in the form of capacity constraints. Rational expectations equilibrium solutions are constructed and then tested experimentally with subjects assigned the roles of sellers and buyers. We investigate behavior in two between-subject conditions with high and moderate levels of capacity. Our laboratory market exhibits strategic sophistication: the price offers of sellers and the buyers’ aggregate responses largely approximate equilibrium predictions. We also observe systematic deviations from equilibrium benchmarks on both sides of the market. Specifically, in our experiment the sellers are boundedly strategic: their prices often exhibit strategic adjustments to profit from buyers with limited strategic sophistication, but they are also often biased towards equilibrium pricing even when that would not be ex-post optimal. View Full-Text
Keywords: dynamic pricing decisions; scarcity; capacity constraints; strategic seller-buyer interactions; experiments; game theory dynamic pricing decisions; scarcity; capacity constraints; strategic seller-buyer interactions; experiments; game theory
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Mak, V.; Rapoport, A.; Gisches, E.J. Dynamic Pricing Decisions and Seller-Buyer Interactions under Capacity Constraints. Games 2018, 9, 10.

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