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There is now a CONTENT FREEZE for Mercury while we switch to a new platform. It began on Friday, March 10 at 6pm and will end on Wednesday, March 15 at noon. No new content can be created during this time, but all material in the system as of the beginning of the freeze will be migrated to the new platform, including users and groups. Functionally the new site is identical to the old one. webteam@gatech.edu
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In recent years, we have witnessed an increased adoption of existing dynamic pricing strategies and their further development. We analyze the optimal design of a markdown pricing mechanism, a form of dynamic pricing, in which the price decreases over time according to a pre-announced schedule. In the presence of limited supply, buyers who choose to purchase at a lower price may face a scarcity in supply. Our focus is on the structure of the optimal markdown mechanisms in the presence of rational or "strategic" buyers. We first examine a complete information setting where each customer demands multiple units. We then generalize our analysis to incomplete information settings where each customer's own valuation/demand is private information to that customer. Under complete and incomplete information settings, we compare the seller's profits resulting from the optimal markdown prices and the optimal single price.
