Zachary Leung

 

In the context of a fashion e-tailer, we study a model for markdown optimization, i.e. how to set prices to maximize revenues from selling a fashion good. In contrast to shoppers in a brick-and-mortar store, Internet shoppers are extremely well-informed of prices, so we expect a high rate of returning customers. We compare the prices and revenue of a myopic pricing policy, which treats returning customers the same as first-time customers, to the optimal pricing policy.