Pricing Limited Capacity Under Consumer Deliberation

Abstract

The pricing of limited capacity is a pivotal issue in many business contexts such as event ticket sales and online flash sales. Prior studies overlook consumer deliberation behavior in the presence of supply limits, leading to ineffective pricing decisions. This motivates investigation of consumer deliberation behavior under supply limits, and the capacity-constrained firm’s pricing and operational strategies. We first show that severe supply limits inhibit consumers’ costly deliberation, while moderate supply limits enhance consumer deliberation as the availability enhancement effect of deliberation reaches its highest potency. Accordingly, the firm with intermediate capacity tends to adopt a normal pricing strategy, that is, pricing as in the market of informed consumers. However, when the capacity is relatively low (sufficiently high), the firm can charge a relatively high (low) price to induce (deter) consumer deliberation, that is, transgressive (regressive) pricing; when the capacity is sufficiently low, the firm should adopt a prior value pricing strategy because consumers never deliberate. Second, on the supply side, it is not always necessary to fully utilize the limited capacity in supplying products, and for firms with high capacity, a low-quality strategy may be preferable even if quality improvement is costless. Finally, extensions to imperfect learning and heterogeneous deliberation costs show the robustness of our baseline model and offer new insights. Interestingly, the presence of demand uncertainty may benefit firms. Our study sheds light on the pricing of limited capacity and elucidates several strategic decisions when considering consumer deliberation behavior.