Selling to strategic customers with cost uncertainty

Production cost can be influenced by previous sales in an uncertain way. In reality, production cost may decrease in the number of initial buyers due to the learning effect, or increase in the number of initial buyers due to the quality-improving pressure from negative comments of unhappy users. Taking this uncertainty into account, this paper studies the optimal intertemporal pricing strategies of a firm when selling to strategic customers in two periods where production cost in the second period randomly changes with the number of buyers in the first period. Our results suggest how firms should adjust their optimal pricing strategies under different market circumstances.