Revenue Management for Products with Unknown Quality and Observable Price and Sales History

This paper studies pricing strategies of a monopolist when customers are strategic and infer the product quality from historical sales and price paths. This behavior may be expected when selling a new, innovative product whose quality is unknown and customers have some, but, imperfect information about the product quality. The monopolist can sell a finite amount of inventory during a finite horizon. Its pricing policy controls the inventory (as in classical revenue management) as well as the customer learning. We derive the structure of the optimal pricing strategy and discuss the implications of strategic customer behavior.