An Experimental Study of Strategic Customer Behavior

Abstract

We use laboratory experiments to gain insights into how customers make purchasing decisions when they have the option of buying at a higher price or waiting for a lower price but incur the risk of the product being out of stock. We investigate behavioral decision-making based on experimental data sets. If decision-making is consistent with our experimental findings, then pricing models that are based on the assumption that customers are rational expected utility maximizers can result in significant loss in profitability. We also study how customers learn based on past experiences.