Dynamic pricing with reference price dependence

Régis Chenavaz

No 2016-20, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: A firm usually sets the selling price of a product by taking into account consumers' reference price. A behavioral pricing scheme integrating reference effects would suggest that the higher the reference price, the higher the firm can set the price. In this paper, the author investigates this intuition by accounting for reference dependence in an optimal control framework. Results show that the dynamics of price originates from the sensitivity of customers to reference price. Contrary to intuition, price dynamics is not systematically associated to the evolution of the reference price, but derives from competing effects related to the dynamics of the reference price.

Keywords: dynamic pricing; behavioral pricing; reference dependence; optimal control (search for similar items in EconPapers)
JEL-codes: C61 D03 M21 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-com and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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https://www.econstor.eu/bitstream/10419/140890/1/859619834.pdf (application/pdf)

Related works:
Working Paper: Dynamic pricing with reference price dependence (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201620

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