Optimal pricing strategies under consumer stockpiling and store loyalty

Empirical examination of the pricing policies of brands in several categories reveals that the pricing distribution is multi-modal with firms offering shallow and deep discounts with varying frequencies. Another interesting feature of these pricing distributions is that the modes are in the interior of the support. However, extant theory on price promotions predicts that the equilibrium pricing density will be bi-modal and the modes will be at the ends of the support of the distribution. In the first chapter, we develop a dynamic game-theoretic model which allows for some price sensitive consumers to stockpile at promotional prices. We examine how such behavior affects firms’ pricing strategy in a setting where firms and consumers interact repeatedly over an infinite horizon. In the second paper, we develop a model to analyze firm’s optimal promotional strategies in a setting where consumers with strong brand preferences stockpile.