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Competition is widely emerging in the fashion supply chain which incentivizes brands to strategically implement different pricing schemes. We study the competition between a fast-fashion brand and a luxury brand that sell substitutable products. Through the whole selling season, the fast-fashion brand commonly adjusts its retail price. Specifically, it may either determine the promotion price responsively in the clearance period (dynamic pricing) or pre-determine and pre-announce it in the regular period (pre-announcement pricing). The luxury brand prefers an unchanged retail price to maintain its brand image. We study how to optimally make pricing decisions in different pricing schemes and how consumers’ strategic behavior, consumers’ hedonic superiority and brands’ pricing schemes affect the optimal decisions. We find that consumers’ strategic behavior is detrimental to both brands even in a competitive pricing model. Besides, consumers’ hedonic superiority will benefit the luxury brand but enhance the fast-fashion brand’s profit only when the cost differentiation is small. Also, we find that a pre-announcement pricing scheme will be unambiguously beneficial to both brands and the whole supply chain. Furthermore, a pre-announcement pricing scheme can alleviate price competition, mitigate monopolization and consumers’ strategic behavior. Finally, we conduct two extensions and find that the qualitatively remain unchanged.

In this paper, we consider a newsvendor system with strategic customers, who are boundedly rational and risk averse in terms of buying during the selling season or waiting for a clearance sale with price discounts. The newsvendor’s decision is to determine the optimal stock quantity. An optimization problem is formulated with the incorporation of competition among strategic customers with private product value information. We embed risk aversion within the quantal response equilibrium to characterize the strategic customer behavior. The influences of the decision biases of strategic customers on the newsvendor’s decision and profit are discussed. We find that the risk aversion considered alone always benefits the newsvendor. However, the bounded rationality considered alone benefits the newsvendor conditionally. Combining the two behavioral factor influences, the decision biases cause the newsvendor to order more and be better off when the critical fractile is high but to order less and be worse off when the critical fractile is low.