Seasonal Goods and Spoiled Milk: Pricing for a Limited Shelf-Life

TL;DR

This paper studies pricing strategies for perishable goods with limited shelf-life, revealing how storage costs and expiry affect seller profits and providing algorithms for optimal pricing.

Contribution

It introduces a novel analysis of limited shelf-life items, deriving tight profit bounds and showing counterintuitive effects of storage costs on profits.

Findings

Increasing storage costs can reduce seller profits in limited shelf-life settings.

Optimal pricing algorithms are developed for perishable goods.

Empirical analysis reveals unique properties of profit and utility relationships.

Abstract

We examine the case of items with a limited shelf-life where storing an item (before consumption) may carry a cost to a buyer (or distributor). For example, eggs, milk, or Groupon coupons have a fixed expiry date, and seasonal goods can suffer a decrease in value. We show how this setting contrasts with recent results by Berbeglia et al (arXiv:1509.07330(v5)) for items with infinite shelf-life. We prove tight bounds on the seller's profits showing how they relate to the items' shelf-life. We show, counterintuitively, that in our limited shelf-life setting, increasing storage costs can sometimes lead to less profit for the seller which cannot happen when items have unlimited shelf-life. We also provide an algorithm that calculates optimal prices. Finally, we examine empirically the relationship between profits and buyer utility as the storage cost and shelf-life duration change, and observe properties, some of which are unique to the limited shelf-life setting.