Risk averse retail pricing with robust demand forecasting

Juan-Carlos Ferrer, Diego Oyarzún and Jorge Vera

International Journal of Production Economics, 2012, vol. 136, issue 1, 151-160

Abstract: Good demand estimates are the key to effective pricing decision-making. However, they are subject to a high degree of uncertainty due to various factors that are unpredictable or difficult to model, thus making pricing decisions risky. This research provides a simple proposal for a robust optimization methodology that incorporates both demand uncertainty and the decision maker's degree of risk aversion. Uncertainty is explicitly considered for two coefficients of a linear demand function, price expressions are derived, and a criterion is proposed for defining the degree of risk aversion. The resulting model is also applied to an exponential demand case to better reflect a more realistic retail setting.

Keywords: Pricing; Risk aversion; Demand uncertainty; Retail; Revenue management (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:136:y:2012:i:1:p:151-160

DOI: 10.1016/j.ijpe.2011.09.026

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