High price or low price? An experimental study on a markdown pricing policy

Junlin Chen and Yingshuai Zhao

European Journal of Operational Research, 2020, vol. 284, issue 1, 240-254

Abstract: This study examines whether strategic customers’ behavioral patterns remain consistent in different pricing scenarios under a markdown pricing policy. These customers’ decision patterns have been widely discussed because they significantly influence the expected monetary output. Contrary to rational assumptions, the behavioral research literature indicates that customers’ behavioral biases manifest in their reference dependency, risk and loss attitudes, and fill rate misperceptions. However, the relationship between behavioral biases and various pricing scenarios has not been carefully examined; accordingly, we conducted laboratory experiments to observe customers’ behavioral performance in a series of pricing scenarios to provide pricing suggestions for sellers. Our experimental results demonstrate that behavioral factors reflecting risk and loss attitudes as well as reference dependency can clearly describe customers’ behavioral biases. Meanwhile, our estimation shows that the degrees of risk and loss attitude are not constant, but depend on price settings: the lower the full price in the initial period, the higher the degrees of aversion to both risk and loss. Given such behavioral patterns, we suggest that sellers should set their full prices lower than the normative value when the fill rate in period two is low, and set them higher than the normative value when the fill rate in period two is high.

Keywords: Behavioral OR; Strategic customers; Reference dependency; Prospect theory; Clearance sales (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221719309853
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:284:y:2020:i:1:p:240-254

DOI: 10.1016/j.ejor.2019.12.001

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().