Dynamic pricing for inventories with reference price effects

Régis Chenavaz and Corina Paraschiv

No 2018-50, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This article presents a dynamic pricing model of a retailer selling an inventory, accounting for consumer behavior. The authors propose an optimal control model, maximizing the intertemporal profit with consumers sensitive to the selling price and to a reference price. The optimal dynamic pricing policy is solved with Pontryagin's maximum principle with a structural (general) demand function. They obtain an original pricing rule, which explicitly accounts for the impact of price and inventory on future profits. The dynamics of price do not have to imitate the dynamics of the reference price. Instead, the dynamics of price are tied to opposing effects linked to this reference price. The authors also discuss managerial implications with regards to behavioral pricing policies.

Keywords: dynamic pricing; inventory; reference price; behavioral pricing; optimal control (search for similar items in EconPapers)
JEL-codes: C61 D03 D40 M21 M37 (search for similar items in EconPapers)
Date: 2018
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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Working Paper: Dynamic pricing for inventories with reference price effects (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201850

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