Product Demand Forecasting and Dynamic Pricing considering Consumers’ Mental Accounting and Peak-End Reference Effects

Wenjie Bi and Mengqi Liu

Journal of Applied Mathematics, 2014, vol. 2014, 1-10

Abstract:

We introduce a demand forecasting model for a monopolistic company selling products to consumers with double-entry mental accounting, which means consumers experience pleasure when consuming goods or service and feel pains when paying for them. Moreover, as the monopolist changes prices, consumers form a reference price that adjusts an anchoring standard based on the lowest price that they perceived, namely, the peak-end anchoring. We obtain the steady state prices under three different payment schemes for two- and infinite-period. We also analyze the relationship between these steady prices and maximal profit and compare the steady state prices of different payment schemes by changing the double-entry mental accounting’s parameters through numerical examples. The proposed model is computationally tractable for demand forecasting of realistic size.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnljam:139030

DOI: 10.1155/2014/139030

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