Markdown, Price Commitment or Price Matching : The Role of Patience for Strategic Consumers and Firms

We compare a patient firm’s markdown (MD), price commitment (PC) and price matching (PM) selling to patient strategic consumers over two periods. Strategic consumers may choose to wait, depending on their level of patience under MD, while they will not choose to wait under PC. Under PM, to discourage consumers from waiting, the firm will compensate consumers by selling the product at a markdown price. The results show that strategic consumer patience and firm patience play a structural role in the firm’s choice of optimal policy. Specifically, for low-cost (or high-cost and low-clearance-price) products, or low-valuation consumers and low-clearance-price products (or high-valuation consumers), only when strategic consumer patience is low and firm patience is high does the firm adopt MD or PM. However, for high-cost products (or low-valuation consumers) and high-clearance-price products, only when firm patience is low does the firm adopt PC. These results are contrary to those of previous studies. In addition, generally speaking, when firm patience is above a threshold, in/decreasing consumer/firm patience may change the firm’s optimal policy from MD (or PM) to PC. Finally, we test the robustness of the model from three extensions (e.g., heterogeneous consumer valuation, endogenous clearance price, and a second-order opportunity)