Topic: Markdown Pricing with Taste-Projecting Consumers

Speaker: Prof. Zheng Quan, University of Science and Technology of China

Time: March 21, 2025, 9:00

Venue: EMS 319

Abstract:

Consumers often exaggerate the degree to which others' tastes resemble their own, a phenomenon called taste projection (TP). This paper explores how TP influences consumer beliefs, market demand, and prices in intertemporal pricing. A monopolist selling a fixed quantity of products over two periods can commit to markdown pricing while consumers time their purchases strategically. In the absence of TP, the seller always prefers the uniform pricing scheme. However, TP leads to discrepancies in perceptions of product availability among consumers. We show that under TP, (i) markdown pricing is optimal when both TP and capacity are low or TP is high, (ii) the profit is weakly increasing in the extent of TP but nonmonotonic with the capacity level, and (iii) consumer surplus can be higher than under rational behavior, resulting in a win-win outcome for the seller and consumers. We further examine dynamic pricing with taste-projecting consumers and characterize the seller's preferred pricing regimes. Our paper highlights the behavioral benefits of pricing in revenue management.

Guest Bio:

Zheng Quan is a Professor at the School of Management, University of Science and Technology of China. His main research areas include the economics of artificial intelligence, retail and platform operations management, supply chain management, behavioral pricing, as well as interdisciplinary research at the intersection of operations management and marketing/information systems. His related research findings have been published in renowned management journals such as Marketing Science, Management Science, MIS Quarterly, M&SOM, and Production and Operations Management.