Analysis of a price markdown mechanism

The Internet provides tremendous opportunities for implementing dynamic pricing mechanisms, since it is easier to collect information about markets and customers, and to change prices electronically rather than physically. We analyze a markdown pricing mechanism, which is a form of dynamic pricing, under complete information. Our focus is on mechanism design and the strategic bidding behavior of the customers. First, we look at a model with a single seller and two customers, where each customer demands multiple units. Then we generalize our analysis to n customer classes and compare an optimal markdown mechanism with the optimal single posted price from a revenue maximizing perspective for the seller.