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Stocking and pricing decisions under endogenous demand and reference point effects

Prasenjit Mandal, Rupali Kaul and Tarun Jain

European Journal of Operational Research, 2018, vol. 264, issue 1, 181-199

Abstract: In this paper, we study the newsvendor’s pricing and stocking decisions under reference point effects. The demand faced by the newsvendor is endogenous and the customers may also decide to procure the product from an outside option. We characterize the firm’s optimal pricing and stocking decisions. Our analysis reveals a threshold policy on the firm’s ordering and pricing decisions while considering the impact of reference point effects. We also find that as the level of optimism increases, the firm’s optimal ordering level decreases and optimal price increases. We further study the impact of loss aversion on the firm’s ordering and pricing decisions.

Keywords: Behavioral OR; Reference point effects; Price-setting newsvendor problem; Endogenous demand (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ejores:v:264:y:2018:i:1:p:181-199