Coordinating pricing and inventory decisions under reference price effects

Timothy L. Urban

International Journal of Manufacturing Technology and Management, 2008, vol. 13, issue 1, 78-94

Abstract: A well-known concept in the marketing literature is that consumers use prices paid in the past or the current market price as a reference point to assess the value of the current price of an item. These 'reference prices' have been shown to have a significant impact on a consumer's purchase decision and a resulting influence on the selling firm's demand of the item. Recently, considerable research has been conducted on coordinated pricing and inventory decisions; however, very little has recognised the existence of reference prices. Thus, a single-period model is developed that incorporates the effects of reference prices, demand uncertainty and price elasticity on the solution. Numeric analysis indicates that accounting for reference prices can have a substantial impact on the pricing and inventory decisions and the resultant profitability, made by a firm.

Keywords: manufacturing-marketing interface; single-period model; reference price effects; pricing decisions; inventory decisions; marketing; manufacturing; coordination; profitability. (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijmtma:v:13:y:2008:i:1:p:78-94

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