Managing Clearance Sales in the Presence of Strategic Customers Journal Article uri icon



  • We study the effect of strategic customer behavior on pricing and rationing decisions of a firm selling a single product over two periods. The seller may limit the availability of the product (that is, ration) in the second (clearance) period. Some customers are strategic and respond to the firm's decisions by timing their purchases. When capacity is nonconstraining and the seller has pricing flexibility, we show that rationing in the clearance period cannot improve revenue. However, when prices are fixed in advance, rationing can improve revenue. In the latter case, we conduct a detailed analysis for linear and exponential demand curves and derive explicit expressions for optimal rationing levels. We find that the policy of doing the better of not restricting availability at the clearance price or not offering the product at the clearance price is typically near optimal. Our analysis also suggests that rationing—although sometimes offering considerable benefit over allowing unrestricted availability in the clearance period—may allow the seller to obtain only a small fraction of the optimal revenue when the prices are chosen optimally without rationing. We extend the analysis to cases where the capacity is constraining and obtain similar results.

publication date

  • July 1, 2008

has restriction

  • closed

Date in CU Experts

  • June 26, 2014 10:03 AM

Full Author List

  • Zhang D; Cooper WL

author count

  • 2

Other Profiles

International Standard Serial Number (ISSN)

  • 1059-1478

Electronic International Standard Serial Number (EISSN)

  • 1937-5956

Additional Document Info

start page

  • 416

end page

  • 431


  • 17


  • 4