When it comes to buying and selling goods with a limited life cycle—such as fashion apparel, concert tickets, and holiday merchandise—shoppers and retailers face different dilemmas. Shoppers must decide whether to buy early in the season at a higher price or later in the season after a markdown. Buying later poses a trade-off because while the product will be cheaper, shoppers will have less time to use it. Meanwhile, sellers must decide how much to order, how to get the shoppers to buy at higher prices, and when and by how much to mark products down.
In a study by Lakshman Krishnamurthi it was found that By slightly reducing their inventory—thereby creating a sense of urgency for shoppers to buy earlier in the season—the retailer would be able to increase the number of sales taking place at higher prices.
Additional experimental scenarios revealed that the retailer was better off offering smaller markdowns earlier in the season rather than large markdowns late in the season. The experiments showed that when small markdowns were offered earlier, strategic buyers caused, on average, a 9 percent dip in sales revenue if there was a risk of stock running out. But this dip was as high as 35 percent of the sales revenue if large markdowns were offered a little later in the season and there was no risk of stock running out.
