Setting Optimal Markdown Timing for Competitive Products

This paper deals with a kind of specific retailing that sells a fixed stock of perishable goods over a finite horizon. Under the case with the set of discrete available prices and given demand rates, Gallego and van Ryzin provides a two-price policy, which are easy for consumers to interpret and for firms to manage. However, if there exists competition in the market and competitors both adopt two-price policy, different markdown timing will certainly lead to customers´ transfer. In this paper, we discuss how to determine the markdown timing for two competitive suppliers. A Cournot game is proposed based on Gallego and van Ryzin´s two-price policy and the equilibrium point is found with the help of illustrations. Compared with the pricing policy without consideration of competition, the optimal markdown timing of the leading product will be delayed and that of the following product will be advanced. The numerical example shows that the leader´s revenue is increased and the follower´s revenue is decreased. We also analyze the effects of the customer transfer probability between two products on the equilibrium of the game through the example.