Dynamic zigzag pricing of resalable goods with no depreciation and intergroup externalities

K Kogan () and U Spiegel
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K Kogan: Bar-Ilan University
U Spiegel: Bar-Ilan University

Journal of the Operational Research Society, 2006, vol. 57, issue 11, 1353-1365

Abstract: Abstract This paper addresses the pricing policy of durable value goods that do not depreciate over time. This implies that demands for this type of goods fluctuate with respect to their market price and social interactions between customers rather than with respect to the time elapsed since they have been produced or created. We suggest an analytical approach for optimally setting durable value product prices with respect to the interdependency between two customer groups characterized by asymmetric intergroup externalities. We demonstrate that cyclic pricing policies of harmonic form become optimal when the company is prepared to compromise its short-run net profit to ensure its lasting reputation. Furthermore, we show that the greater the difference between the product of the price and the externality effect of the two customer groups, the greater the frequency of the harmonic fluctuation.

Keywords: costing and pricing; optimization; utility theory; marketing and sales (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1057/palgrave.jors.2602130

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