Influential Article Review - Intertemporal Pricing Tactics for Fashion Tech Goods with Consumption Externalities

Abstract

This paper examines product development. We present insights from a highly influential paper. Here are the highlights from this paper: With the rapid development of technology, more and more products tend to both meet customers’ functional needs and provide stylish consumption experiences at the same time. We define them as “fashion tech” products. In practice there exist two opposite consumption externalities associated with “fashion tech” products. One, some customers are more likely to purchase the product if fewer customers can afford or have access to it to advertise their prosperity or good taste. In contrast, other customers’ utility increases with the rising number of other customers. Thus the firm needs to consider such consumption externalities in their pricing decisions in order to appropriately position products and maximize profits. In such contexts, this paper optimizes intertemporal pricing strategies for fashion tech products selling to strategic customers with two kinds of externalities. We find that a markdown strategy is always optimal. In addition, it is appropriate for the firm to use slight markdowns when both the fraction of snobs and probability of stockout are small or use sharp markdowns otherwise. For our overseas readers, we then present the insights from this paper in Spanish, French, Portuguese, and German.