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Dynamic quality policies with reference quality effects

Régis Chenavaz ()

Applied Economics, 2017, vol. 49, issue 32, 3156-3162

Abstract: Dynamic pricing policies with reference-price demand have been intensely analysed. Less studied are dynamic quality policies with reference-quality demand. This article studies the dynamic quality policy of a firm whose consumers use a reference point in their decision-making, in line with the principles of behavioural economics. More specifically, I consider reference quality formation in an optimal control setting. By solving on the basis of Pontryagin’s maximum principle, I obtain analytical solutions to the optimal quality policy. The managerial implications of quality reference for dynamic quality policy are discussed.

Date: 2017
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