Quick response under strategic consumers with risk preference and decreasing valuation

Yongli Wang, Juliang Zhang, T.C. Edwin Cheng and Guowei Hua

International Journal of Production Research, 2018, vol. 56, issue 1-2, 72-85

Abstract: This paper addresses the impact of the quick response (QR) strategy on the profit of a retailer that sells a product to strategic consumers with risk preference and decreasing valuation, and makes pricing and order quantity decisions. We find that the optimal pricing and expected profit decrease in consumers’ risk preference and valuation decreasing rate, and the optimal inventory is unrelated to them. The effect of the QR strategy depends on the QR cost, consumers’ risk preference, and valuation decreasing rate. When the QR cost is low, the QR strategy can mitigate strategic consumers’ behaviour and bring profit to the retailer. Otherwise, the QR strategy may further reduce the retailer’s expected profit and intensify the negative effect of strategic consumers’ behaviour. The profit brought by the QR strategy decreases in consumers’ risk preference and valuation decreasing rate. Furthermore, we consider the case involving heterogeneous strategic consumers. We find that the proportion of high-valuation consumers in the market has an impact on the optimal decisions of the retailer and the effect of the QR strategy. The more high-valuation consumers there are, the greater is the profit brought by the QR strategy.

Date: 2018
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Citations: View citations in EconPapers (6)

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DOI: 10.1080/00207543.2017.1391421

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